Australian business investment fell unexpectedly in the September quarter, creating additional downside risks for next week’s third-quarter national accounts and GDP figures.
As well the outlook for investment for the rest of 2019-20 has soured a little – mining investment remains strong, but there was a slowdown in growth away from that sector in manufacturing and an absolute fall in investment intentions for the rest of the financial year from other selected industries (that perhaps reflects the slide in dwelling investment).
According to the Australian Bureau of Statistics, private sector capital expenditure (CAPEX) slipped 0.2% during the quarter after seasonal adjustment which slightly worse than the flat result expected by economists.
It was the third quarterly fall in a row (and the lowest) with the June quarter saw a fall of 0.5% and the three months to March a fall of 1.7%. Investment rose 2% in the December 2018 quarter.
It has t be again pointed out that this data series does not fully capture investment decisions by many small to medium businesses and in some sectors such as health services and education.
The annual rate of decline was 1.3% for the three months to September after falls in the year to June of 1.0% and 1.9% in the year to Match.
Economists said the biggest surprise – and the biggest influence on GDP was the CAPEX data on plant, machinery, and equipment which was down 3.5% in the latest quarter.
This component feeds directly into the national accounts and GDP report and will detract from economic growth during the quarter – possibly as much as 0.2 percentage points according to economists at the ANZ.
While that steep fall was largely offset by a 2.7% lift in building CAPEX, that doesn’t have a direct impact on GDP.
And there was another glum note in the ABS data yesterday – the while the 4th estimate for CAPEX for the current 2019-20 financial year was 2.5% higher at $116.7 billion than the 4th estimate for 2018-19 and up 3.4% than the third estimate in the June quarter report, it was short of the $120 billion figure than many economists had pencilled in.
And the rise and strength of the September data clearly shows the driver for investment is mining – up 15.7% from the 4th estimate a year ago while manufacturing investment was up only 1% and investment by selected other industries (such as power utilities, real estate, building, etc) was down 3.3%.
In fact, there was a notable slowdown in investment intentions for other selected industries in the September quarter – it was up 5.8% in the June quarter from the third estimate for 2018-19 and is now down 3.3%. Likewise intended manufacturing investment growth slowed to 1% in the September quarter (and the 4th estimate) from a 1.7% rate in the June quarter.
“While mining firms remain fairly positive, non-mining firms have lowered their expectations and now plan to reduce investment by 3 percent in the current financial year compared to expectations of a 6 percent rise last quarter,” ANZ senior economist Felicity Emmett told clients on Thursday. “This is a disappointing outcome and likely reflects weak business confidence amidst global uncertainty.”
Ms. Emmett said that if the downgraded expectations materialise, it will “weigh on the recovery in growth, eventually flowing through to a weaker labour market”.
And National Australia Bank said the fall in the value of construction work done in the September quarter (which also showed up in the investment figures) will detract from economic growth in the September quarter, adding to downside risks that already stem from weak retail sales over the same period.
For the upcoming Q3 GDP – which is due Wednesday – private construction work subtracted 0.1 percentage points from real GDP,” said Kaixin Owyong, markets economist at the NAB.
“Adjusting renovations to align with the national accounts, private residential construction fell 2.3 percent in the quarter, marking the fourth decline in a row. Private nonresidential construction fell 1.2 percent in Q3, which was the third fall in a row.”
Government spending on construction work (mostly infrastructure spending) rose 5.3% in the quarter, but the impact of that won’t be known until the government finance data is released next Tuesday when the quarterly balance of payments, another key factor, is also released.