Good news for the economy as Qld businesses increase investment in machinery & equipment

Despite having some weak regional economies, particularly in the Townsville and Queensland outback regions, the State economy overall recorded reasonably healthy growth in State Final Demand in the June quarter of 0.7 percent in seasonally adjusted terms. This is very good news and is a testament to the robust economy of SEQ. Pete Faulkner has an excellent summary of the new data released by the ABS yesterday at his blog (GDP +0.5% q/q and +2.9% ann in line with expectations. QLD moves into positive territory):

The story from Queensland is one of a recovery. State Final Demand (which does not account for the state’s massive exports) rose 0.7% q/q which is the best performance in 3 years. Interestingly, given the talk about the slowdown in Private Investment, this sector was up 0.9% for the quarter with investment in machinery and equipment (which accounts for 23% of Private Fixed Capital) jumping 10.4% q/q. Public sector Fixed Capital also grew strongly up 6.8% q/q which helped the Public sector grow 1.9% q/q. The net result from this renewed strength is that State Final Demand was down just 1.2% for the year 2015-16 and up 0.4% y/y; this is the best result since the end of 2014 although it still falls a little short of the 2016-17 Budget forecast of a 1.0% decline.

Pete is right to highlight the increased private sector investment in machinery and equipment as a good sign, as it suggests new businesses are opening up or existing ones are expanding, or at least they feel confident enough to replace old equipment (see my chart below). Let us hope this translates into a boost in employment soon. Along with greater dwelling construction, greater investment in machinery and equipment offset the adverse impact on State Final Demand coming from the continuing decline in non-residential construction, which is largely associated with the mining downturn and the completion of the Gladstone LNG processing facilities.

sfd_jun16_chart1

While private sector investment and household consumption made solid contributions to the growth in State Final Demand in June, the majority of the growth was due to increases in Government expenditure (see chart below, noting the columns represent percentage point contributions to the growth in State Final Demand of 0.7% in June quarter; i.e. the columns add up to 0.7%). Given the Federal and State budgetary positions, the desirability of public expenditure increases may be questioned by some economists. That said, these expenditures are supporting demand at a challenging time for Queensland’s economy as it adjusts to the mining downturn.

sfd_jun16_chart2

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4 Responses to Good news for the economy as Qld businesses increase investment in machinery & equipment

  1. Glen says:

    I clicked on an old post of yours Gene from a few years ago that highlighted Townsville as number 24 out of 560 local govt areas on an economic performance rating, Brisbane was 54th, how things have changed in such a short time. It really proves how deeply construction numbers generate the economy on so many levels, right through to retailers etc. Townsville completely failed to adjust its economy despite plenty of warning construction was going to slow, with SEQ construction expected to come off sharply this time next year it will be interesting to see what the govt and councils in SEQ do to offset the downturn.

  2. Alistair Robson says:

    You take the blue pill, the story ends and you believe the ABS GDP data unconditionally. You wake up in your bed and believe whatever you want to believe from the agency which doesn’t have the resources to run a census properly (let alone other economic surveys).

    You take the red pill, you stay in Wonderland, and I show you how deep the ABS GDP rabbit hole goes.
    (Source: adapted from The Matrix)

    I encourage all Economists to ask will you take the blue pill or red pill?

    Unfortunately this is not conspiracy talk anymore. Given the Census problems now most of the public know the issues with ABS data collection (and unfortunately they increasingly look at ABS numbers with disbelief). I remember ABS data issues going back 10 years ago with the retail trade and other surveys and “adjustments” to methodologies which curiously followed “efficiency dividends” (funny that! – but that’s another story).

    The article today by Greg Jericho really shows why the ABS numbers should be treated with a pinch (handful?) of salt – https://www.theguardian.com/business/grogonomics/2016/sep/08/48bn-found-down-the-back-of-the-couch-doesnt-leave-much-confidence-in-gdp-figures

    Too often in my career I see technocrat (and media) economists swallow the blue pill. Again thanks Ross Gittens for the terminology!

    PS – a big thanks to the massive upward revision of “primary income credits from non-residents.” and Chinook helicopter purchases, 59.6% jump in Victorian and 43.8% jump in Western Australian state and local government investment.

    • Gene Tunny says:

      Thanks Alistair. There are occasionally eyebrow raising transactions in the national accounts that is true but I have no reason to doubt these figures. They are not ridiculously high and we know NSW and Victoria are doing well from the NAB business survey for example. Thanks for the comment and the link to Greg Jericho’s article.

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