The latest official statistics on private business investment, released today, showed the emergence of more green shoots on the capital expenditure (capex) outlook.
This was the third straight improvement in projected spending. Also, firms nationally lifted actual spending in Q3, the third straight rise. This was despite another decline in spending by the miners, although even this fall was the smallest since mid-2014.
Last quarter, private investment across all industries rose by 1.0%q/q, in line with economists’ expectations, after a 1.1% increase in the June quarter. The latest broad-based rises in investment spending on buildings and structures and plant and equipment have important implications for the Q3 GDP data, released next week. It now looks like the economy will have expanded at a decent clip last quarter, after the 0.8% rate of expansion in Q2.
The all-important forward looking investment spending intentions showed a small upgrade by firms outside mining. After adjustment for managers’ usual estimation errors (most underestimate their actual spending in the forward-looking surveys), it now looks like economy-wide investment will fall only modestly (down 0.4%) in the year ended 30 June. Previously, firms had expected to trim spending by as much as 7% relative to a year earlier.
Firms within the resources sector still plan to slash investment (by a whopping 22%), but this has more to do with project completions than cancellations. Many large resource projects are moving from the construction phase to production, particularly in LNG, so it makes sense that investment is falling. Elsewhere, firms in manufacturing plan to raise spending by nearly 2% this year while, encouragingly, those in all other sectors expect a 12% lift.
The next capex survey in three months’ time will reveal firms’ expected spending for the year ended June 2019. This survey probably will reveal a long-awaited rise in economy-wide investment spending, given recent positive developments. Indeed, the landscape for investment has been improving for a while. Business conditions are at record highs in the NAB business survey, interest rates remain at all-time lows and the global economic outlook is improving. Also, replacement of aging plant and equipment cannot be delayed indefinitely.