From the impressive Elliot Clarke:
Total new capital expenditure rose by 3.6% in the September quarter to be 0.7% lower over the year. This is well above the market and our own expectations of a –1.2% outcome.
However, the upside surprise came about entirely due to stronger-than-expected buildings and structures work, up 6.3% in Q3 and 3.9%yr. This is not surprising given the upside surprise in yesterday’s construction work done release.
In contrast, equipment investment was as expected, declining 1.5% in Q3 and 8.8%yr.
In terms of the industry breakdown, mining activity rose 4.0%, services increased 3.1% and manufacturing gained 2.5%. By state, the gains were strongest in SA (+12.5%), NT (+11.6%) and Tas (9.4%). Vic saw a 4.2% gain, while activity in WA rose 2.9%. NSW and Qld both saw incremental gains of less that 1%.
2013/14 expectations
Likely supported by the jump in confidence following the Federal election, 2013/14 capex expectations saw a notable improvement in estimate 4.
Compared to their 2012/13 values, estimate 4 now implies a 2% decline in 2013/14 versus estimate 3’s 10% decline. This improvement is principally due to buildings and structures expectations rising from –7.6% in estimate 3 to +1.4% in estimate 4. Equipment expectations also improved, albeit more modestly from –15.1% in estimate 3 to –9.7% in estimate 4.
By industry, the total improvement came from the mining sector(-13.1% to – 3.3%); services (+1.6% to + 2.6%); and manufacturing (-24.7% to -11.2%).
In an effort to abstract from the volatility apparent in the data through time, we also use a second method to assess investment expectations. Herein we use a 3yr average of the relevant realisation ratio for mining and a 10yr average for manufacturing and services. These estimates are then compared to the 2012/13 actuals.
This method also points to an improvement in expections, but a much more modest one. Specifically, in 2013/14: mining investment is expected to decline by 4.1% (–6.1% previously); manufacturing investment is to fall by 10.0% (–11.7% previously); and servces investment is to increase by 4.0% (previously flat). Overall, a 1.6% decline is anticipated compared to a 4.2% decline three months ago.
These modest improvements should be set in the context of the unusually weak August print, partly due to high uncertainty around the election. In particular, the ‘services’ print while up on the August read still compares very poorly with the May result from this survey which pointed to an 11% boost in services investment in 2013/14.
In summary, this survey has, as would be expected, shown a modest improvement relative to the August survey which was conducted at a time of high uncertainty. The modest improvement in the non-mining investment plans is still a disappointing result given the strong boost to business confidence following the election outcome.
