CapEx — Q3 | By the numbers
- Actual capital expenditure fell by 0.5% in Q3 to $A29.354bn, which disappointed market expectations for a 1% rise (prior: -0.9%q/q revised from -2.5%q/q)
- Investment in equipment plant and machinery items (GDP input) increased by 2.2% in the quarter to $A13.709bn (prior: -0.3%q/q from -0.9%q/q)
- Expenditure on buildings and structures fell by 2.8% in Q3 to $A15.645bn (prior: -1.3%q/q from -3.9%q/q)
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- The 4th estimate of expected capital expenditure in the 2018/19 financial year was upgraded by 11.3% to $A114.099bn. This figure is 4.4% higher compared to the same point a year earlier.
CapEx — Q3 | The details
The capital expenditure data contains two main aspects — an estimate for the actual level of investment made by businesses in the quarter and details for their total expected level of investment for the financial year. These data cover only around 60% of total business investment in Australia and exclude the health, education and agricultural industries.
In terms of actual investment in Q3, total capex fell unexpectedly by 0.5% to $29.534bn where the market had been forecasting a rise of 1%. This was weighed a 2.8% fall in spending on buildings and structures to $15.645bn. However, investment in items of equipment, plant and machinery — an input into GDP calculations — increased by 2.2% to $13.709bn.
The ABS also categorises these data by industry. With overall capex falling by 0.5% in Q3, it was declining investment from the mining sector that weighed on the headline result, reflecting the completion of major projects in the LNG sector. The breakdown was; mining -2.7% ($8.425bn), while the non-mining sector saw investment lift modestly by 0.3% ($20.928bn).
The non-mining sector is made up of manufacturing (+2.7% in Q3 to $2.473bn) and other selected (mainly services) industries (flat in Q3 at $18.455bn).
Turning to the intentions component, Australian firms now expect investment in the current financial year to total $114.099bn. These expectations are based on estimate 4 for 2018/19, which was compiled by the Statistics Bureau between October and November. The previous estimate taken between July and August was $102.479bn. Firms have, therefore, lifted their investment plans for the current financial year by 11.3% over this time. Compared to the same point a year ago, investment intentions have risen by 4.4% (from $109.269bn).
Investment intentions typically rise from estimate to estimate as firms become more certain in their outlook, though the magnitude of this increase was much higher than average (around 5.5% between estimates 3 and 4) and was the strongest upgrade between estimate 3 and 4 in almost 20 years.
Looking at the industry breakdown, it is the non-mining sector that is expected to drive the rise in overall business investment. Non-mining business investment is forecast to rise by 6.8% in 2018/19 (to $80.707bn) compared to the previous financial year, with manufacturing +7.4% (to $9.725bn) and services +6.8% (to $70.982bn).
Investment from the mining sector is still anticipated to drag — though very modestly — by -1.1% (to $33.356bn). Over recent financial years mining sector capital expenditure has been unwinding from the construction-driven boom in the early part of the decade and this has been a significant weight on overall business investment. There could be further weakness to come with major LNG projects now completed, though the drag is likely to be diminished compared to recent years.
CapEx — Q3 | Insights
Looking towards next week's Q3 GDP, the outcome from capital expenditure on equipment, plant and machinery was a modest rise of 2.2%, but yesterday's Construction Work Done data pointed to weakness from investment in non-residential construction, which was also evident in today's data. Non-mining business investment appears to be on a modest upward trend consistent with rising company profits and positive leads from surveys of business conditions and confidence and broadly in line with the expectations of the RBA.
