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Business Investment: the most positive in 12 years
Business Investment
Investment rises: New business investment (spending on buildings and equipment) rose by 1.0 per cent in the September quarter after a 1.1 per cent lift in the June quarter.
Expected business investment: The fourth estimate of investment in 2017/18 is $108.9 billion and is 1.6 per cent higher than the fourth estimate for 2016/17 – the best result for a fourth estimate reading in five years. The upgrade in investment between the first and fourth estimates is 34.1 per cent – the biggest upgrade in 12 years. The investment data is important for companies in mining services, construction, transport and other industrial sectors.
What does it all mean?
Businesses are investing, and more importantly expect to spend even more in coming months. In fact the upgrade in investment plans from the first to the fourth reading for the financial year is the strongest for an equivalent period going back 12 years. The other good news is that there is a broad-based lift in actual investment spending across states and territories with non-mining investment leading the way.
Investment outside mining and manufacturing sectors hit fresh record highs in the September quarter. And this may be under-stating the true situation because the Bureau of Statistics survey of investment excludes a number of key sectors such as health care, education, the public sector and agriculture.
So overall there is a lot to like with the latest investment survey – spending is rising, especially in the services sectors, while investment plans are being revised higher. Lower prices for equipment is one of the factors supporting investment spending together with strong corporate balance sheets.
What do the figures show?
Private business investment
Overall: Business investment (spending on buildings and equipment) rose by 1.0 per cent in the September quarter after a 1.1 per cent lift in the June quarter. Spending on buildings rose by 1.2 per cent in the quarter while spending on equipment rose by 0.7 per cent. Investment is up 2.3 per cent over the year with buildings up by 2.4 per cent while equipment was up by 2.2 per cent.
Sectors: Mining investment was flat in the September quarter, while manufacturing spending fell by 2.7 per cent and spending by “other selected industries” rose by 2.1 per cent.
States: In seasonally adjusted terms investment rose in all but one of the eight states and territories in the September quarter: NSW (up 0.9 per cent); Victoria (up 1.3 per cent); Queensland (down 0.2 per cent); South Australia (up 21.8 per cent); Western Australia (up 0.8 per cent); Tasmania (up 10.6 per cent); Northern Territory (up 2.5 per cent); ACT (unchanged).
Prices: The overall deflator for investment goods was flat in the September quarter after rising by 0.3 per cent in the June quarter. The cost of buildings and structures rose by 0.5 per cent while the cost of equipment fell by 0.7 per cent. Over the year, the cost of investment goods rose by 0.4 per cent. The cost of buildings rose by 2.3 per cent – a rate that hasn’t been exceeded in 6 years – while the cost of investment equipment fell by 2.1 per cent.
Forecasts: The fourth estimate of investment in 2017/18 is $108.9 billion and is 1.6 per cent higher than the fourth estimate for 2016/17 – the best result for a fourth estimate reading in five years. The upgrade in investment between the first and fourth estimates is 34.1 per cent – the biggest upgrade in 12 years.
What is the importance of the economic data?
“Private New Capital Expenditure and Expected Expenditure” is released quarterly by the Bureau of Statistics. The figures show both actual and expected spending by businesses on tangible assets such as new buildings, machinery and office equipment. The figures are obtained after sampling 8,000 private business units.
What are the implications for interest rates and investors?
The latest National Australia Bank survey indicated that business conditions were at 20-year highs. And business confidence is also reportedly well above average. So it would have been surprising if these results weren’t reflected in spending plans. The data on private investment complements other figures on public spending in infrastructure. There are clearly good reasons to be positive on the economic outlook.
CommSec still expects official interest rates to remain on hold for an extended period. Investment is lifting, but from a low base. And inflation remains contained outside the construction sector.
Originally published by Craig James, Chief Economist, CommSec