The Q1 private new capital expenditure (capex) and April home building approvals readings are out on Thursday 30th May at 11.30am. The Q1 capex report provides past information about business investment spending – mining investment spending is of particular interest – feeding into Q1 GDP (out on 5th June). Q1 is a little early to be looking for evidence of a significant pull-back in mining investment spending so the consensus forecast is around a 0.5% lift in capex which if it occurs would make about a 0.1 percentage point contribution to Q1 GDP growth. Given the earlier strong report of Q1 retail sales and the improving international trade position in Q1, GDP growth is tracking around 0.8% q-o-q, solid growth if it occurs.
Perhaps the more important part of the Q1 capex report is the survey material it contains concerning expected capex spending in 2012- 13 (the current financial year) and in 2013-14 (next financial year). The current financial year survey will contain 9 months of actual spending and 3 months of expected spending. Quite likely Q2 2013 capex plans are much weaker than where companies thought they would be three months ago. Several big mineral resource project deferral announcements have occurred over the past month or two. As a result, even 2012-13 expected capex has probably been cut
to around $A162bn from $A168.2bn forecast just three months ago. The 2013-14 capex forecast first made three months ago probably captured many of the deferral announcements that have been made recently. As a result, there is probably a further downward revision to 2013-14 capex to say $A151bn, from $A152.5bn forecast three months ago. The revision downwards to 2012-13 capex and the relative weakness of 2013-14 capex reading will help to inform the RBA’s view about what size dent the capping out of the resource investment boom will make in prospective economic growth and how fast other parts of the economy can be allowed to grow to compensate.
Concerning the compensating parts of the economy, April home building approvals will indicate whether the strength building in home sales and housing finance commitments is starting to flow more strongly into future home building activity. The consensus April home building approvals forecast is +4% for the month, which if it occurs, would point to compensating strength starting to appear generally in housing activity. The RBA would be wary of cutting the cash rate further if housing activity shows signs of strengthening much further.