When the resources industry was threatening a capital strike during the resources rent tax argy-bargy, it was quietly planning a massive surge in investment.
Today’s Australian Bureau of Statistics capital expenditure survey for the June quarter shows miners in that fraught period were expecting to invest a massive $54.8 billion this financial year up, up 29 per cent on their actual 2009-10 capex and a whopping 48 per cent higher than the corresponding expectations survey for that year.
What’s more, the expectations for capex this year are up by 12 per cent on the estimate made in the March quarter. Whatever the mining industry was saying, whatever projects were frozen, the big private investment surge the Reserve Bank and Treasury are relying on just got bigger.
And, crucially, it’s not just the resources industry that plans to increase investment this year – capex expectations are up across the board in marked contrast to the dip in business confidence surveys over the past couple of months. This may be a case of watch what I do, not what I say.
The estimate for total private sector capital expenditure for 2010-11 is $123.3 billion, up 17.5 per cent on the March quarter estimate, 24 per cent higher than the equivalent estimate for the year just finished, 16 per cent more than capex for last financial year.
Even the manufacturing industry, feeling the pressure of the stronger Australian dollar, intends to spend with forecast capex this financial year of $14.1 billion, up 12 per cent from the March quarter survey.
The broad “other selected industries” reckon they’ll spend $54.4 billion by June 30, 25 per cent more than they were thinking in the March quarter. Intended spending on buildings and structures is up 30 per cent in just three months while equipment, plant and machinery is 21 per cent. The two-star performers in the subsections were rental, hiring and real estate services and transport, postal and warehousing, both up 34 per cent.
There’s often a slip between expectations and realised expenditure, but over the past five years the June quarter estimate for the year has either been exceeded or finished up being about right.
This should be a major boost for Australian business confidence when media is dominated by the woes of North Atlantic economies, cautious reporting season commentary and never mind what passes for local politics.
It has been the RBA’s forecast and the federal government’s hope that the private sector investment would arrive to pick up the lull created by the phasing out of stimulus spending. Today’s stats say that forecast and hope are not just on track, but perhaps being exceeded.
Having spent yesterday at the DMC Skills Australia annual conference, these capex expectations underline the skills shortage challenge ahead. There’s already effectively full employment in many of the key trades.
The monetary policy bears will seize on this welcome growth as a reason for predicting higher interest rates – but those forecasts may not come true for a while yet. Whoever emerges as Prime Minister, the 457 temporary work visa system and permanent skilled migration schemes remain happily in place to ease a problem that would otherwise both cause inflation and prevent projects starting.
And the RBA, on a roll with its forecasting lately, believes Australian consumers will remain wary for the next year, increasing their savings ratio rather than pouring all their extra earnings into the retailers’ pockets.
Looking through Woolworths results, the better retailers will do very nicely anyway. The Woolworths figures are a reminder to commentators to look for the quality, rather than just quantity. The knee-jerk reactions to sales figures failed to allow for the quality of the retailers’ management and their protection of profitability.
While hands were being wrung about the impact of the stimulus now missing from consumers’ wallets, Woolworths still increased its gross profit margin from 25.66 to 25.91 per cent. The supermarket gross margin improved by 46 points to 24.51 per cent.
There’s a message there: if Wesfarmers wants to get hairy-chested about Coles competition, Woolworths has the firepower to deal with it. And both parties know that. Woolworths is a business that makes a 77 per cent return on funds employed.
Woolworths also pointedly reminded analysts that Big W, the business that most felt that lack of cash splash this time, had still outperformed all other department stores over the three-year period.
And some of those capex expectations numbers belong to the dominant retailer – investing more money in its supply chain infrastructure in a project that it expects to deliver lower costs over the next five years.
Yes, there are reasons to be cautious about the economy, but there also are reasons to be optimistic. Watch the money, rather than the rhetoric.
Michael Pascoe is a BusinessDay contributing editor
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