Chief economist update: The angel in the capex details

Australian actual total capital expenditure was down 0.5% in the third quarter following a 0.9% decline in the second and lower than market expectations for a 1% pick up.

That's the headline splattered on our screens when the Australian Bureau of Statistics (ABS) released its latest report: Private New Capital Expenditure and Expected Expenditure, Australia, Sep 2018.

The headline numbers were the result of a 2.8% drop in capital spending in building and structures over the quarter that was partly offset by a 2.2% increase in equipment, plant and machinery.

Year-on-year, actual total capex declined by 0.6% in the September quarter, a sharp reversal from the second quarter's 1.7% increase and a sharp downturn from the strong 4.2% gain in the March quarter.

There's nothing to sing Christmas carols about the report. The Grinch is stealing Christmas.

But hold your horses.

The details of the capex report suggest good tidings ahead. Capital spending intentions are rising.

According to the ABS: "Estimate 4 for 2018-19 is $114,099m. This is 4.4% higher than Estimate 4 for 2017-18. Estimate 4 is 11.3% higher than Estimate 3 for 2018-19."

Yes Virginia, Australian businesses have upped their capital spending plans in the face of multiplying challenges - trade war, Fed hikes, global slowdown led by China and melting emerging markets, Brexit, wobbly share markets and on the domestic front, record high household debt levels, stagnant wages growth, declining property prices and weak consumer spending.

The rise in capex expectations could be linked to the NAB business survey that although business conditions eased in October, the reading of 12 remains more than twice its long-run average of five, that NAB chief economist Alan Oster says, "continues to point to a healthy business sector, with profitability and trading conditions remaining high, and forward looking indicators still favourable."

Read more: AustraliaEstimateABSChristmasSepAlan OsterAustralian Bureau of StatisticsBrexitChinaExpected ExpenditureFedGrinchPrivate New Capital ExpenditureYes Virginia
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