Capex up but cracks appearing
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SYDNEY, Nov 29 AAP
November 29 2012, 2:27PM
Business capital spending rose in the latest quarter but there are clear signs a peak in the mining investment boom is imminent.
On the surface, the figures from the Australian Bureau of Statistics (ABS) on Thursday were very positive.
The estimates of actual capital expenditure (capex, as economists like to call it) show a rise of three per cent in the September quarter, seasonally adjusted and adjusting for price changes.
So far, so good.
But if you look closely you can see some cracks appearing in the numbers.
Annual growth in capex was 14 per cent - strong, but barely half the 24 per cent rise the year before.
Investment in mining grew strongly, by 39 per cent in the past year, but also only a bit more than half the previous through-the-year rise of 64 per cent.
In manufacturing, capex fell by 26 per cent through the year, by far the biggest annual drop in the 25-year-old survey.
In other industries there was an annual fall of four per cent.
The patchwork economy is as patchy as ever.
The ABS also released updated projections for capex in the 2012/13 financial year.
The estimates are not adjusted for inflation, but tell a powerful story anyway.
Adjusting for the average gap between estimates from the fourth survey round - what was released on Thursday - to final outcomes over the previous five years, the projections point to capex growth of 11 per cent from 2011/12 to 2012/13.
Using the previous one year as a basis for adjustment suggests an annual rise of five per cent while using the latest 10 years suggests a 15 per cent rise.
But with the first quarter - the September quarter - of 2012/13 already known, it's easy to work out that if even if capex flatlined over the final three quarters of the year that year-to-year growth would come in at nine per cent.
That would be well within the range of plausible outcomes suggested by the projections.
Even an year-to-year rise of 15 per cent, on the optimistic side of adjusted projections, would only need through-the-year growth of around third of the 29 per cent surge seen through 2011/12.
In other words, the projections are consistent with the possibility that capex has already peaked and the likelihood that its growth rate has slowed markedly.
There are other worrying signs.
Projections tend to be upgraded from quarter to quarter before converging on the final outcome for the year in question.
Over the history of the survey, starting with projections for 1987/88, the change between between the fourth estimate - the one released on Thursday - and the final outcome averaged six per cent.
But the fourth estimate for 2012/13 was actually three per cent below the third estimate, the biggest such downgrade since the survey began.
And between mining, manufacturing and other industries, the biggest break from the historical norm this year was in mining.
Over the history of the survey, mining capex projections have been scaled up by an average of five per cent between the third and fourth rounds of surveying.
This year, though, plans have been pared back by eight per cent, the biggest margin for the sector at this stage of surveying.
Capex is still very high, and still dominated by mining, but the peak in mining investment does not seem to be far off.
Not far off at all.
By Garry Shilson-Josling, AAP Economist