Actual capital expenditures fall sharply on mining

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By Leith van Onselen

The Australian Bureau of Statistics (ABS) today released data on capital expenditures (capex) for the March quarter of 2014, which registered a seasonally-adjusted 5.2% fall in capex over the quarter and a 5.7% decrease over the year. The result disappointed analyst’s expectations of a 1.5% fall over the quarter (see below table).

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While Houses and Holes has covered the more important capex intentions survey, which covers industry’s forward-looking capex plans over the coming years, below are some backward looking charts showing actual capex up to the March quarter of 2014.

The first chart below shows actual capex by industry in dollar terms (rather than volume terms as shown above). As you can see, the fall in total capex (-3.7%) was driven by mining (-8.1%), with manufacturing capex (+2.8%) and other capex (+2.6%) both recording small rises (see next chart).

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While manufacturing capex registered a small rise, it remains in the doldrums, with its share of total capex at a paltry 6.3% in March – although up 0.7% from the June 2013 low (see below charts).

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As expected, the fall in overall capex was concentrated in the mining jurisdictions of Western Australia (-$230 million), Queensland (-$1,282 million) and the Northern Territory (-$855 million). New South Wales (+440 million), South Australia (+$77 million) and the ACT ($+$24 million) bucked the trend, whereas Victoria was basically flat (-$10 million):

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Looking ahead, the capex pipeline continues to trend lower, due to falling planned mining investment (see next chart).

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Overall, this release should drag on GDP for the March quarter. Moreover, the longer-term outlook remains poor, with mining capex still facing a prolonged period of falls; although at least there are some offsets in manufacturing and other areas.

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Unconventional Economist

Comments

  1. Leith,,

    Do you know what the market expectations are for next weeks GDP print (before this data was released?).

    Cheers

  2. mine-otour in a china shop

    Finally we see a fall in volume terms. I would love to see some MB analysis on the various daflators used by the ABS to calculate previous volume changes in investment in the national accounts.

    Many look very low to me in the past – particularly for new engineering construction investment and also Machinery and Equipment investment categories.

    This is a difficult area with exchange rate apprecaition absorbing some increases, but some ABS deflator estimates look really low, boosting the volume growth in the past.

    In nominal terms all that has been keeping the total up in the past is cost over-runs in existing projects – little new projects are on line. The worm has turned now but I wonder does the data over-estimate volume growth over the last few years?

  3. LabrynthMEMBER

    Is it possible to provide a graph of what was predicted and then what actually happened? It would help in determining if the forecasts under or over shoot their predictions.

  4. Just ‘on the ground’ feedback. My friends from arounfd Roma Coal seam gas) tell me the a..e has fallen out of the whole shebang. For yearsw you coluldn’t get a motel room in town – now it is definitely NOT a problem. House prices down maybe 25% or 30% but still not selling…usual stuff.

      • Haha, tell me about it. I typed Roma QLD into Google Maps, and had to click ‘Zoom Out’ six times before I could tell where the heck Roma is!

      • Every mining or gas town would look the same. Unfortunately you display a common characteristic – if the place isn’t on the coast; isn’t over-crowded with blocks of units; doesn’t have a million people sitting around on their arses doing nothing but regulating the few people who do still DO stuff in this country; then you think it doesn’t matter. the people who live there don’t matter; and the economic activity generated in and by that area doesn’t matter! Just rip the crap out of it and redirect all the money to the big cities.

        Well you aren’t on your own. That’s the fundamental economic tenet that underlies economic policy for the nation.

      • Please Flawse, don’t project your sh!t onto me! I have heard it all before – copy and paste rant. And I agree with much of it and much of what you say generally (CAD, foreign IOUs, selling assets for funny money).

        The point is, the property market in a town like Roma is a false market. Prices falling 20-30% – from what level! Some insane level they should never have gone to in the first place. No shortage of land, just a false scarcity.

        I certainly don’t pity any property investors in those towns left holding the baby!

        I do pity those small businesses and home owners that have been displaced or marginalised.

  5. Would be good to see capex intentions borken down by state.

    While it was nowhere near the scale of WA, it looks like NSW had a meaningful pick-up in capex, so it would be interesting to know how big the capex cliff is for NSW…

    …seeing as NSW is the most populous state in Australia, and NSW is spear-heading the house price rises.

    • WestConnex Motorway, Enfield Intermodal, Moorebank Intermodal, Pacific Highway upgrades, F3/M2 Connection, South West rail extension, M5 duplication.

      Would not have picked up 2nd airport and associated infrastructure yet.

  6. Do they adjust for retired capital?

    You know, what was the value of depreciation of capital equipment over the period?

    And how is capital equipment removed from production dealt with?

    When the automotive industry shutters production how will that show up in official statistics in relation to capex?

    Will there be a difference if they transfer the robots to offshore plants compared to if they just scrap them?

    What about the plant used for pressing panels, wheels etc when they are scrapped.

    • In the national accounting identity

      GDP = C + I + G + (X-N)

      I is net of depreciation.

      So if Investment for the quarter is $100m, and depreciation was $50m (including closing down factories etc), net investment for GDP purposes is $50m

      Please do not ask me how they calculate depreciation.

  7. WA is certainly in for a rough ride when capex drops off. It has the furtherest to fall for sure.

    • Yep NSW and Victoria will continue to parasitise the rest of Aus so they will be fine – particularly as you can just about win government by winning NSW and Victoria.