The Australian Bureau of Statistics has released the latest version – Australian private new capital spending and expected spending – Today (26 May 2022), this is part of several releases ahead of the release of the June quarter National Accounts next Wednesday. Today’s business investment data showed that private new capital expenditure in Australia fell 0.3 per cent in the third quarter but rose 2.2 per cent year-on-year. It was the second consecutive quarter of declines in business investment, and the September quarter is also likely to contract, which would all but wipe out the positive annualized result. That’s the job of the Australian business world – they’re enjoying big cuts in the real wages of the workforce, record profit levels, a rising profit share – while their investment performance is abysmal. There is some tension in the data though – as the forecast series points to an increase in business investment over the next 12 months. I think that’s overly optimistic, as household spending may slow as rising interest rates and high energy prices really squeeze low-income households. One of the challenges for the new federal government is to somehow convince the business community to change their behavior in this regard. Good luck. The business sector has hijacked the Jobs and Skills Summit agenda to turn it into a case for more skilled migrants – which would further dampen wage growth, push up unemployment and put further pressure on the nearly impossible rent and household markets – — the way it’s clear they’re not for change. And, if the new Treasurer continues to ramble on about $1 trillion in debt and the need to cut the fiscal deficit, we’ll be in recession.
ABS data shows that for the June 2022 quarter (actual and seasonally adjusted):
- Total new capital spending fell 0.3% in the quarter but rose 2% year over year.
- Building and structural investment fell 2.5% in the quarter but rose 1% year over year.
- Equipment, plant and machinery grew 2.1% in the quarter and 3.2% year over year.
- Mining investment fell 0.3% in the quarter, but was up 10% year-on-year.
- Manufacturing investment rose 2.2% in the quarter and 3.9% year-on-year.
- Non-mining investment fell 0.3% in the quarter and 0.9% year-on-year.
From today’s Federal Government jobs summit in Canberra being hijacked by the skills agenda, we can see how business in this country works.
Initially to prepare a new white paper on “full employment” – an early pitch by the new government to the campaign – it was hijacked by the business lobby and instead focused on skills shortages -> increasing immigration -> keeping wages up Low.
Despite claims that wage growth is at the heart of the agenda.
In addition, the treasury secretary now says they don’t have “room” in federal finances to increase unemployment benefits at current levels, which are well below the poverty line, because they have “trillions of dollars in debt.”
At the same time, they remain committed to the previous conservative administration’s tax cuts, which would reduce tax revenues by about $230 billion and overwhelmingly favor the male-dominated top few percent. The bottom of the wage distribution will hardly benefit.
This is a continuation of the neoliberal-Labour style.
Next week I will write more about the concept of “deep adaptation”. But class conflict is a key dynamic in the Australian system, and unless the power of corporations is significantly reduced, rational adjustment is impossible.
Then the worsening climate will force us to make changes, and the results will not be good.
Australian business investment status
The first graph shows the scale of Australia’s problem with investment in productive capacity. It shows real gross capital formation from the September 1987 quarter (start of the sample) to the June 2022 quarter.
The giant hump is associated with a once-in-a-century mining boom (see below).
The chart below shows real private capital expenditures by broad sector.
The booms and busts of the mining industry are historically extraordinary.
The graph below shows the quarterly percentage change in aggregate mining private capital expenditures from the December 2007 quarter to the June 2022 quarter.
The damage to capital formation from the global financial crisis is clear.
The same was true, with some sporadic recovery in investment spending that led to the pandemic, but fortunes turned in 2020 as the fallout from the pandemic dampened sentiment.
Expected business investment
ABS—— Explanatory Notes – Help us understand their expected investment spend series.
We read:
Surveys are conducted on a quarterly basis, and returns are completed within 8 or 9 weeks of the end of the quarter to which the survey data relates (eg, March quarterly survey returns are completed in April and May).
– Companies are required to provide 3 basic data in each survey:
– Actual expenditure incurred during the reference period (Act)
– Short-term expectations (E1) and long-term expectations (E2).
Regarding this model, the ABS said that for 2022-23:
- The first estimates are available from the December 2021 survey as long-term expectations (E2)
- The second estimate comes from the March 2022 survey (again as a long-term expectation)
- A third estimate is available from the June 2022 survey as the sum of the two expected values (E1 + E2)
- In the September 2022, December 2022, and March 2022 surveys, the fourth, fifth, and sixth estimates were derived from actual expenditures (for the portion of the year completed) and projected expenditures (for the remainder of the year), respectively ), as recorded in the quarterly survey
- The final (or seventh) estimate for the June 2023 quarterly survey is derived from the sum of actual spending in each of the four quarters of fiscal 2022-23.
As a result, we have the graph below showing total year-to-date capex (solid bars) and expected full-year capex (transparent bars), which allows you to track changes in spending (planned), expected and what actually happened.
It is clear that the expected (planned) private investment spending in 2022-23 is higher than this year, which is still a quarter.
ABS states:
The 2021-22 estimate7 is $142.8b
This is 0.6% lower than the 2021-22 estimate6
Estimate 3 for 2022-23 is $146.45b
This is 11.7% higher than the 2022-23 estimate2
In other words, expected investment still points to an expansion in overall investment spending over the next 12 months.
It’s hard to compare expectations with what actually happened.
That inflection point tension — where the actual series starts to turn and expectations haven’t caught up — comes into play here.
The chart below shows the expected investment over the next 12 months (estimate 3), our latest investment for 2022-23.
The data shows that business investment will grow by 14.7% in the next 12 months.
Again, it’s hard to believe this will happen – with the RBA raising interest rates and consumer spending likely to slow down the road.
ABS also released their latest – Lending Metrics – July 2022 – Seasonally adjusted value of new loan commitments:
- Home prices fell 8.5%.
- Personal term loans rose 7.7%.
- Commercial construction fell 35.4% and fell 38.4% over the past 12 months.
- The price of commercial-purchased properties rose 40.2%, and was up 2.5% over the past 12 months.
It’s hard to explain the investment aspect of this release.
Clearly, housing finance is going backwards – with the RBA’s frenzy over interest rates, the charge for buying houses and apartments is coming to an end.
As households face doubling their monthly mortgage payments, home prices are starting to fall as sharply as we’ve seen for decades.
This decline has to be seen in the light of the massive housing boom we’ve just experienced, making it nearly impossible for new entrants to buy affordable housing.
But news on commercial lending was mixed.
Commercial construction loans are now retreating.
But after a sharp drop in June 2022, businesses are buying properties again.
However, the ABS noted that the latter series “may be subject to monthly fluctuations as it is strongly influenced by a small number of high-value loans.”
So we’ll have to wait and see.
in conclusion
While profits are at record levels as real wages plummet, business investment is now likely to be in a terminal decline.
Despite recent improvements in productivity growth, businesses are buying real estate and paying huge executive salaries while refusing to offer decent wage increases to employees.
One of the challenges for the new federal government is to somehow convince the business community to change their behavior in this regard.
Good luck.
The business sector has hijacked the Jobs and Skills Summit agenda to turn it into a case for more skilled migrants – which would further dampen wage growth, push up unemployment and put further pressure on the nearly impossible rent and household markets – — the way it’s clear they’re not for change.
And, if the new Treasurer continues to ramble on about $1 trillion in debt and the need to cut the fiscal deficit, we’ll be in recession.
Next Wednesday, the Australian National Accounts will be released and we will see how much this negative investment performance is weighing on growth.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
