Good news for economic growth next week?
That would be welcome after the spate of poor to average news, including the various confidence surveys and recent job cuts.
But it’s now becoming apparent that the Australian economy looks like it will remain out of negative territory next week after better than expected investment spending and construction spending in the quarter.
On top of that the cash splash before Christmas from the federal Government will do its bit.
But these are backward looking figures: so far the expectations for 2009 are sliding, including some of the information in yesterday’s investment spending figures.
But Australian business investment was much stronger than thought in the December quarter.
But at the same time more signs are emerging that business is scaling back its capital spending plans as the resources boom exhausts itself and the general economic slowdown gathers pace.
There was in fact more than enough lingering work in the pipeline to give a better than expected reading in the latest investment figures from the Australian Bureau of Statistics for the December quarter.
And, that could mean there’s enough juice left in the business investment tank to have kept Australian economic growth positive for the December quarter.
The new private capital spending figures from the ABS yesterday show another increase in spending plans, but the growth rate in the December quarter estimates is noticeably lower than they were in the September quarter.
The ABS said total new capital expenditure in the December quarter (in volume terms) rose 6.0% in seasonally adjusted estimate terms from the September quarter, with the estimate for buildings and structures up 11.5% and 1% for plant and machinery. (All seasonally adjusted).
That’s much better than market estimates which ranged around a fall of up to 3% (2.7% for Goldman Sachs JBWere for instance).
In the fifth estimate for the current financial year, the ABS said spending could total $98,145m, 14.3% higher than Estimate 5 for 2007-08.
That’s still a strong figure, but it is noticeable less than in the previous estimates.
The ABS said estimate 5 is 4.4% lower than Estimate 4 for 2008-09, indicating the impact of the slump in mining and resources.
That was borne out by this comment from the ABS which said Estimate 5’s slowdown was "after sustained growth in the estimate for 2008-09 in the three preceding quarters. Expectations for the first half of 2009 were 8.5% lower in the December quarter survey than when collected in the September quarter."
The ABS said the first estimate for the 2009-10 financial year was for a 0.6% rise in spending to $79.866 million.
"By industry, Estimate 1 for Mining is 9.4% higher than the same estimate for 2008-09, while for Other selected industries, Estimate 1 is 8.0% lower than in 2008-09.”
It’s quite likely that spending next financial year will fall, as will the spend in the next six months. And that’s the real story from the figures.
The December quarter numbers are historical, the spending plans for the rest of the year and the 2010 financial year are prospective and they are weakening by the quarter.
So what does this mean for the December
quarter GDP figures next Wednesday?
More economists are going positive with a Bloomberg survey today saying GDP will rise 0.9%.
"Gross domestic product probably rose 0.9 percent in the fourth quarter from a year earlier, according to the median forecast of 17 economists surveyed by Bloomberg News. GDP figures will be published on March 4."
The spending figures are positive, given they were much higher than market estimates and many market economists have been tipping negative growth, with a slump in spending as part of their forecasts.
On Monday and Tuesday we get an indication with the release of ABS figures for business inventories, the balance of payments figures for the December quarter and then government spending for the quarter.
They are treated differently when taken into the national accounts but inventories will probably be higher, given the sluggish nature of some forms of retailing: if it is it could be slight positive for the GDP figures; the balance of payments could be hard to assess as we have had a surge, then fall in exports and a slide in imports because of lower oil prices.
On balance that could be a small positive.
The big imponderable is government spending, especially the $8 billion injected into the economy in December.
That has already ruffled the ABS’s statisticians in retailing (even though retail sales jumped 3.8% in December, they were up 0.8% for the quarter).
Wages figures out this week for the quarter and for the 2008 year the strongest in the history of the series (which would have gotten us a rate rise next Tuesday from the RBA). (And average weekly earnings from September to November were up a sharp 1.6%, according to ABS figures).
Construction figures were better than forecast this week, with a stronger than expected rise in engineering. That too will be a small positive.
The gain in engineering construction of 3.6% for the quarter was surprising, given it followed a 12.4% surge in activity in the September quarter. Along with the 6% rise in capital sending, it looks like the last fling of the resources sector.
Economists at Goldman Sachs JBWere reckon the construction and wages news suggest a slightly bett
