CAPEX is a pleasant surprise…except for QLD

The private capital expenditure data released this morning has been a pleasant surprise for the markets. Third quarter actual CAPEX had been expected to come in around a 1.5% decline; in actual fact the result was a modest 0.2% increase. The crucial Plant, Equipment and Machinery component, which will feed into next week’s release of the Q3 GDP number, rose a healthy 4.4% for the quarter (against expectations of a 1.0% decline….expect to see GDP forecasts being revised up in the days to come!). Of course, CAPEX is still falling as the mining investment boom unwinds, therefore the Q3 CAPEX total is down 5.9% from the same period a year ago; although Plant, Equipment and Machinery figure only shows a 1.4% decline for the year. As we have been saying for some time, the “mining investment cliff” is nowhere near as bad as the doom-sayers have been anticipating, and there is some evidence of other sectors “taking up the slack”.

Unfortunately the same positivity cannot be brought to the data for QLD. The Q3 CAPEX total for the state shows a decline of 6.5% for the quarter and now sits 18.5% below the level of a year ago. The Plant, Equipment and Machinery sector has posted a solid 6.5% increase for the quarter, although this still represents a 4.8% decline over the year (and this should help to support State Product data next week). The big falls in QLD have come from the Building and Structures sector where the quarter saw a 11.2% fall, and a huge 23.3% decline over the year. Mining investment data will be spread between these two components. The ABS produce seasonally adjusted data in volume terms for mining investment across the nation (down 3.5% in the quarter) but at the State level we only have industry based data on a current price basis; so the two are not directly comparable. Nevertheless the current price data for QLD shows mining investment fell by 15,4%. Clearly the mining investment slowdown in QLD is far more dramatic than across the nation as a whole.

The ABS release also provides data on expected investment in the 2014-15 financial year. This release sees the 4th (out of 7) estimates for the year at $153.2 bn, a rise of 2.2% from the 3rd estimate and a decline of 7.5% from the 4th estimate last year. $153.2 bn is actually only a 3% decline from the final number for the full 2013-14 financial year, although as the graph below makes clear, the final results historically tend to be somewhat below the forecast levels of the 4th estimate. The Federal budget has been based on a decline in CAPEX of about 5.5% and, at this stage, that doesn’t appear to be too far off the likely outcome.

TOTAL CAPITAL EXPENDITURE

Chart: Financial year actual and expected expenditure- Total Capital Expenditure

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