Biggest lift in planned investment in a decade

• The Australian Bureau of Statistics (ABS) said new business investment (spending on buildings and equipment) fell by 0.3 per cent in the March quarter but was still up by 4.5 per cent on the year.

• The cost of investment goods rose 2.2 per cent in the quarter to be up 6.6 per cent on the year – the biggest annual increase in 33½ years.
• The sixth estimate of expected investment in 2021/22 is 15.5 per cent higher than the equivalent estimate for 2020/21. And the second estimate of expected investment in 2022/23 is up 11.8 per cent on the first estimate and 15 per cent higher than the equivalent estimate for 2021/22 – the strongest result in a decade.

What does it mean?

• Aussie businesses remain in good shape and are focussed on investing in, and growing, their businesses over the coming few years. The worry is that the cost of building and purchasing new equipment continues to soar. Businesses have shown greater tendency to pass on costs to consumers, so inflationary pressures remain significant.
• The second estimate of spending for 2022/23 is up 15 per cent on a year ago – the biggest lift in planned spending for a decade. The ABS business survey also noted “Of the 18 per cent of businesses that have planned capital expenditure over the next three months, 80 per cent expect it to be the same or more than what is usual for this time of year.”
• The latest business survey from ABS shows that 38 per cent of firms plan to increase prices of their goods and services while 48 per cent expect no changes in price. Both expectations are similar to the March survey results. In terms of profitability, the bad news is that a smaller proportion of firms (14 per cent) reported a lift in revenue over the past month, down from 19 per cent.

What does it mean?

Private Capital Expenditure – March quarter

• Overall: New business investment (spending on buildings and equipment, ‘capex’) fell by 0.3 per cent in the March quarter but was still up by 4.5 per cent on the year.
• Spending on buildings and structures fell by 1.7 per cent but was still up by 7.1 per cent on a year ago.
• Spending on equipment, plant and machinery rose by 1.2 per cent to be up by 1.8 per cent on a year ago.
• Sectors: Mining investment fell by 0.3 per cent in the March quarter and non-mining investment also fell 0.3 per cent.
• Industries: In seasonally adjusted terms investment rose in just six of the 17 industries in the March quarter. Capex rose the most in Electricity, Gas, Water and Waste (up 9.9 per cent); Transport, Postal and Warehousing (up 7.8 per cent); and Financial and Insurance Services (up 7.0 per cent).
• But spending fell most in Education and Training (down 17.1 per cent); Arts and Recreation Services (down 16.3 per cent); and Retail trade (down 11.4 per cent).
• States: In seasonally adjusted terms investment rose in four states and territories during the March quarter: NSW (-3.3 per cent); Victoria (-3.6 per cent); Queensland (+1.7 per cent); South Australia (-7.6 per cent); Western Australia (+2.3 per cent); Tasmania (-4.8 per cent); Northern Territory (+3.4 per cent) and ACT (+3.3 per cent).
• Prices: The overall deflator for investment goods rose by 2.2 per cent in the March quarter – the biggest rise in 13 years. The cost of buildings and structures rose by 2.0 per cent in the quarter (equal biggest rise in 13½ years) while the cost of equipment rose by 2.9 per cent (biggest rise in 13 years).
• Over the year, the cost of investment goods rose by 6.6 per cent, the biggest rise in 33½ years. The cost of buildings rose by 6.8 per cent (biggest rise in 13 years). And the cost of equipment investment rose by 6.3 per cent (biggest rise in 6½ years).
• Expected business investment: The sixth estimate of expected investment in 2021/22 is 15.5 per cent higher than the equivalent estimate for 2020/21. And the second estimate of expected investment in 2022/23 is up 11.8 per cent on the first estimate and 15 per cent higher than the equivalent estimate for 2021/22 – the strongest result in a decade.

• The survey was done May 11-18.
• Price of goods and services: “Overall, 38 per cent of all businesses expected the price of their goods or services to increase over the next three months, whilst 48 per cent expected no increase to their prices. These expectations are consistent with March 2022.
• Of the 38 per cent of businesses that expect to increase their prices, the majority indicated increases to the costs of products or services used by the business (92 per cent) and rising fuel or energy prices (78 per cent) were the main contributing factors.
• Of the 48 per cent of businesses that expect no increase to their prices, almost half indicated that the reason for not increasing prices were to retain customers (46 per cent) and having fixed price contracts (46 per cent).”
• Revenue: “The proportion of businesses reporting an increase in revenue over the past month has decreased to 14 per cent compared to 19 per cent of businesses in April 2022 and 17 per cent in May 2021. Looking at the month ahead 17 per cent of all businesses expected an increase in revenue which is less than May 2021 (20 per cent).
• Funds sought by business: “Just under one in ten businesses (9 per cent) sought additional funds over the past three months. This is less than February 2022 (12 per cent) but consistent with May 2021 (8 per cent).”
• “Almost nine in ten (86 per cent) businesses had not sought additional funds over the past three months. These businesses provided information about why they had not sought funds. The most common reason was that the business had sufficient funds which was consistently 90 per cent or greater across small, medium and large businesses.”

Originally published by CommSec