Aus capex survey provides further headaches

The private capex survey of actual and expected spending is unique to Australia.  While some of the actuals feed straight into GDP for equipment spending, the survey also provides a broad based look at investment intentions for the current and next financial year.

The first bit of bad news is that equipment spending was down 2.3%QoQ, adding another negative to the Q4 GDP numbers, which are looking very soggy (see this post). Furthermore, the survey data shows that the mining boom has peaked and is now rolling over.

The way to interpret the data is that as the shades of blue get darker, we get closer to the actual result, which is the final column.  The key piece of data in this release was the first expectation for capex in FY14, which is shown on the chart of the left.

There are a number of ways of translating an estimate into a full year forecast.  As the chart shows, over the last few years final spending has been much higher than the first estimate.  But that seems unlikely for this year or the next, so scaling forecasts up on this basis doesn't make sense.

It seems likely that this year and the next, spending is going to be close to or below the first estimate of the year.  If FY14 ends up the same as FY13, then total spend would be down ~8%YoY.

While the quarterly timing of the peak of investment activity isn't entirely clear, the big picture is that investment is going to be going backwards after growing very strongly.  This is going to leave a very big hole in growth.

Looking at different sectors, most have expected mining investment expectations to be down and have slipped by ~12%. It would seem the risk is that spending intentions will slip further given the increased focus on cost control.

Manufacturing looks like an even bigger disaster, with firms totally capitulating.  Not only are expectations down ~24%YoY for next financial year, but the remainder of the current year looks like it will be very weak.

This is concerning as rather than help cushion the blow from lower mining investment, it is going to be declining faster even more rapidly.  The high Australian dollar is clearly causing big problems and perhaps the RBA will be further compelled to cut rates to get the dollar lower.

Its not all doom and gloom, with other selected industries actually posting gains. In particular, rental and real estate services have become more bullish on the outlook, presumably on the back of rate cuts and the better housing activity.

But as posted here, the housing rebound has been pretty modest and the data hasn't been that great more recently.  If housing doesn't improve further from here I think some of this optimism is likely to disappear.  This will probably require further rate cuts.

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