Interpac Business and Migration Solutions Melbourne Australia

(September 1, 2011)

There’s a massive contradiction between what significant parts of corporate Australia are saying about the economy and what they’re doing about it: investing with their ears pinned back. Not only is the capital expenditure boom rolling on, it’s gathering pace.

Australia’s chief financial officers have told the Australian Bureau of Statistics that they intend to splurge $148.8 billion on new capex this financial year – 24 per cent more than the record investment they made last year, 6 per cent more than they were intending three months’ ago. And it’s not just in mining.

The ABS June quarter survey even finds the allegedly doomed manufacturing sector increasing its investment this financial year, planning $13.1 billion of capex, 10.5 per cent more than forecast in the March quarter survey, 7.4 per cent more than the $12.2 billion estimated to have been spent in 2010-11. The manufacturing investment intentions are pretty much in line with that of the five previous years – not an indication of an industry that claims it has no future.

The best the bad news bears will be able to make of these statistics (and everyone can always find something to suit their case) is a $2.6 billion fall in non-resources construction and that the overall actual spend in 2010-11 looks like finishing down a bit on earlier estimates – a 3.5 per cent dip from the March survey, but still a massive $119.7 billion.

In terms of what that means for the Australian economy right now, it’s relatively meaningless. What makes these particular ABS figures so important is that they are forward looking, not just a measure of recent history. And what the CFOs have told the ABS about 2011-12 indicates a broadening and deepening of the unprecedented capex boom.

The mining industry’s $82.1 billion in investment plans represent 55 per cent of the total, but appear to be plateauing while other industry’s capex intentions are growing. Mining capex intentions were flat from the March to the June quarters, while total capex was up 6.2 per cent.

Most of that rise is in the broad “other selected industries” category where the estimate of 2011-12 capex spending jumped 16.7 per cent from the March quarter to $53.5 billion.

Overall, spending on buildings and structures is expected to hit $98.6 billion, up from $66.1 billion last financial year. Some $50.2 billion will be spent on equipment, plant and machinery, down $3.4 billion on last year, but up 14.6 per cent from the March estimate. And the trend for equipment spending is for the estimate to grow through the year.

The next capex survey in three months’ time will provide an indication of whether the more cautious consumer and global uncertainty over the past month were enough to dint investment intentions, but the track record even in the GFC indicates that most of the investing tends to be locked in by now.

During the present uncertainty in some quarters, the $148.8 billion in capex intentions combined with the hundreds of billions from the commodities boom should provide a base confidence in the economy – and the reason why the Reserve Bank is not jumping to cut rates at the behest of the vocal sectors feeling the heat of a restructuring economy.

The more detailed breakdown of sector intentions shows the well-publicised retail sector intending to invest $4.13 billion this year, down just $64 million on last year – effectively steady.

Given the NBN rollout, it seems curious that “information, media and telecommunications” capex is estimated at $4.8 billion for this year, up just $72 from 2010-11 and down $193 million form 2009-10.

The “rental, hiring and real estate services” sector estimate of $9.5 billion is down $1.4 billion, but the biggest percentage fall is in “professional, scientific and technical services” – 36 per cent to $2.4 billion.