Biggest lift in business investment in 8½ years

Business investment; Average weekly earnings

Business investment: New business investment (spending on buildings and equipment) rose by 3.0 per cent – the biggest quarterly lift in 8½ years – in the December quarter after five successive declines. But spending is still down 7.5 per cent on the year. Economists had tipped a 1.0 per cent lift in the quarter.

Expected business investment: The fifth estimate for business investment in 2020/21 is $121.4 billion, up 4.8 per cent on the fourth estimate. But the fifth estimate is 7.1 per cent lower than the previous fifth estimate made for 2019/20 intentions. The first estimate for 2021/22 is $105.5 billion, down 3.4 per cent when compared to the previous first estimate for 2020/21 intentions.

Average weekly earnings: In seasonally adjusted terms, average weekly ordinary time earnings (AWOTE) was $1,711.60 in November 2020, down 0.1 per cent since May 2020, but up by 3.2 per cent on a year ago. The average annual wage is $89,003.

The investment data is important for companies in mining services, construction, transport and other industrial sectors. The wage data is important for consumer-focussed industries including retailers.

What does it all mean?

• Private sector capital spending or business investment (‘capex’) lifted by 3 per cent in the December quarter – the strongest quarterly growth rate since the 8.6 per cent lift in March 2012! The rebound occurred on the back of the biggest lift in business spending on plant, equipment and machinery in six years – which was up 5.7 per cent in the quarter. Encouragingly, this is the component of the ‘capex’ report that matters most for next week’s December quarter national accounts.

• Recent business surveys from the NAB and IHS-Markit purchasing managers point to an improvement in business confidence and conditions following the pandemic shock. And Deloitte’s H2 20 CFO sentiment survey suggests that around 70 per cent of the country’s top business accountants are feeling more optimistic about the financial prospects of their companies in 2021. Mergers and acquisitions activity could lift sharply if the survey is any guide.

• While trading conditions have improved, profits have lifted and surplus cash has boosted balance sheets, supply disruptions, rising input costs and virus policy uncertainty have kept business owners cautious. In fact, business credit growth remains anaemic, despite the implied lift in spending plans in 2021/22. Nevertheless, the improvement in business spending intentions bodes well for hiring plans – critical to the broader economic recovery.

What do the figures show?

Private Capital Expenditure – December quarter

• Overall: New business investment (spending on buildings and equipment) rose by 3.0 per cent – the most in 8½ years – in the December quarter after five successive declines. But spending is still down 7.5 per cent on the year.

• Spending on buildings and structures rose by 0.7 per cent but was still down 9.4 per cent on a year ago.

• Spending on equipment, plant and machinery lifted by 5.7 per cent – the biggest lift in 6 years – but was still down 5.2 per cent on a year ago.

• Sectors: Mining investment fell by 1.4 per cent in the December quarter to be down 1.2 per cent on a year ago. But non-mining investment rose by 4.9 per cent, but was down 9.7 per cent on a year ago.

• Industries: In seasonally adjusted terms investment rose in 12 of the 17 industries in the December quarter: Mining (-1.4 per cent); Manufacturing (+1.3 per cent); Electricity, Gas, Water and Waste (-7.1 per cent); Construction (+14.6 per cent); Wholesale trade (+0.8 per cent); Retail Trade (+2.9 per cent); Accommodation & Food Services (+34.0 per cent); Transport, Postal and Warehousing (+18.9 per cent); Information Media and Telecommunications (+9.4 per cent); Financial and Insurance Services (-12.6 per cent); Rental, Hiring and Real Estate (+2.2 per cent); Professional, Scientific and Technical Services (+2.5 per cent); Administrative and Support Services (+15.8 per cent); Education and Training (-5.4 per cent); Health Care and Social Assistance (+8.2 per cent); Arts and Recreation Services (-13.8 per cent); Other Services (+10.1 per cent).

• States: In seasonally adjusted terms investment rose in five states and territories during the December quarter: NSW (+8.1 per cent); Victoria (+4.3 per cent); Queensland (-4.6 per cent); South Australia (+0.7 per cent); Western Australia (-0.6 per cent); Tasmania (+17.2 per cent); Northern Territory (+32.2 per cent) and ACT (-10.4 per cent).

• Prices: The overall deflator for investment goods was flat in the December quarter. The cost of buildings and structures rose by 0.2 per cent in the quarter while the cost of equipment lifted 0.8 per cent.

• Over the year, the cost of investment goods rose by 0.7 per cent, the weakest annual gain in 2½ years. The cost of buildings rose by 0.4 per cent. And the cost of investment equipment lifted 0.8 per cent.

• Expected business investment: The fifth estimate for business investment in 2020/21 is $121.4 billion, up 4.8 per cent on the fourth estimate. But the fifth estimate is 7.1 per cent lower than the previous fifth estimate made for 2019/20 intentions. The first estimate for 2021/22 is $105.5 billion, down 3.4 per cent when compared to the previous first estimate for 2020/21 intentions.

• Please note that the private new capital expenditure and expected expenditure release now includes more comprehensive data on the Education & Training and Health Care & Social Assistance industries.

Average weekly earnings – November 2020

• In seasonally adjusted terms, average weekly ordinary time earnings (AWOTE) was $1,711.60 in November 2020, down 0.1 per cent since May 2020, but up by 3.2 per cent on a year ago.

• Ordinary time wages for full-time female workers rose by 3.6 per cent to $1,562.00 over the year with male wages up by 3.0 per cent to $1,804.20.

• Across States & Territories over the year to November: NSW (up by 4.3 per cent); Victoria (up by 4.4 per cent); Queensland (up 0.4 per cent); South Australia (up by 2.6 per cent); Western Australia (up by 3.5 per cent); Tasmania (up by 2.6 per cent); Northern Territory (up by 1.1 per cent); ACT (up by 3.3 per cent).

• The average wage in November was $89,003.

• Across states & territories, we have calculated average annual wages as follows: NSW $91,099; Victoria $89,154; Queensland $83,746; South Australia $80,142; Western Australia $95,706; Tasmania $77,381; Northern Territory $88,592; and the ACT $98,155.

• By industry, wages rose most over the year to November in Manufacturing (up 5.9 per cent), Professional, Scientific and Technical Services (up by 5.6 per cent), followed by Health Care and Social Assistance (up by 5.4 per cent) and Rental, Hiring and Real Estate Services (up by 5.4 per cent).

• Wages were weakest over the past year to November in Arts & Recreational Services (down by 4.0 per cent), followed by Administrative & Support Services (down by 1.8 per cent) and Accommodation & Food Services (down by 1.5 per cent).

• The highest average annual wage can still be found in the Mining sector at $136,926 per year. Next highest is Information Media & Telecommunications ($105,747), Finance & Insurance Services ($105,669) and Professional, Scientific & Technical Services ($104,073).

• The lowest average annual wage is obtained by workers in the Accommodation and Food Services sector ($60,377), followed by Retail Trade ($67,044) and “Other Services” ($68,786).

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.

• The ABS publishes the Average Weekly Earnings (AWE) series on a six-monthly basis. While the Wage Cost Index allows analysis of wage movements from quarter-to-quarter, the AWE series is best seen as a measure of actual dollar figures for wages. But average weekly earnings figures can be distorted by changes such as the relative growth of high-paid to low-paid jobs and the cashing out of bonuses in ordinary earnings.

What are the implications for investors?

• The pandemic has certainly had a huge compositional impact on Aussie jobs and earnings. Workers in the highly disrupted Arts & Recreational Services and Accommodation & Food Services industries have seen their wages fall by up to 4 per cent over the year to November 2020. But those employed in Manufacturing, Professional, Scientific & Technical Services, Health Care & Social Assistance, and Rental, Hiring & Real Estate Services have seen their wages lift by over 5 per cent over the same period.

• The average wage in Australia was $89,000 in November 2020 – and even higher in the ACT, Western Australia and New South Wales. On average, miners get paid the most, while those employed in the Accommodation and Food Services sector get paid the least. Some are calling it the ‘K’-shaped recession and recovery!
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Published by Ryan Felsman, Senior Economist, CommSec