It sometimes seems capital investment commentary in Australia concentrates on mining and manufacturing, perhaps because they are industries with unhappy outlooks – bad news is good news.
The reality is that the game has moved on, that the non-resources sector is substantially larger than mining and that manufacturing is but a small part of that non-resources story.
So while the immediate headline for the June quarter private fixed capital investment statistics is that capex was "less worse" than expected, it missed the real story: the outlook for non-resources capex is positive.
As usual, the most interesting part of the Australian Bureau of Statistics quarterly capex survey is what the nation's chief financial officers are saying about what they will invest over the year ahead, not the historical scorecard of how much they invested over the past financial year.
There is no news at all in mining capex shrinking as the second phase of the three-phase resources boom falls away. Phase one was prices rising, phase two was building mines which naturally and healthily gives way to phase three – mining and exporting more stuff.
There's also little surprise in manufacturing capex continuing to slide, although it is interesting and perhaps even encouraging that the slide is slowing. More about that a little later.
What matters much more for this year's economic outlook and the big bet being made on our economy's transition is that non-resources capex is continuing to grow – and grow nicely.
The ABS' "other selected industries" definition is an imperfect guide to what is happening, but it's the best we have at present. On that score, the final count for the past financial year showed capex of $58.3 billion, up 3.5 per cent on the previous year.
Capex: Other selected industries
Source: ABS
The good news is that the other selected industries' CFOs are saying in their June quarter "estimate 3" that they'll invest $55.7 billion this year, a hefty 12.2 per cent more than last year's "estimate 3".
The way the game tends to work is that the estimates grow as the year grows older. In the past five years, the final count in this category finished about $15 billion to $20 billion higher than the first estimate.
(Some unkind souls would argue that it's in a CFO's nature to be pessimistic and tight-fisted at the start of the year about how much money will have to be invested. Hence the pattern of an increase in the investment estimate as the grasp on the corporate wallet is steadily loosened.)
The other selected industries' step up from estimate 1 to 2 and from 2 to 3 are all nicely strong. Should the trend hold, we can reasonably expect this category to finish 2014-15 somewhere about the $65 billion mark. Add on capex in the manufacturing sector and there's more than $73 billion in non-resources private fixed capital investment
And at this point, it's worth another reminder that the ABS capex survey barely captures half of the non-resources activity. With plenty happening in health, education, agriculture and software, we're left to guess the real growth for non-resources is at least keeping pace with (and quite possibly exceeding) the bits that are counted.
So mark us down for the thick end of $150 billion worth of total non-resources capex – compared with the latest mining capex estimate of $81.4 billion.
Meanwhile, back at the manufacturing story, it's a small mercy that capex for the past financial year actually didn't fall away much – $9.2 billion, down 2.8 per cent on 2012-13. Given all the headlines we've seen over the past couple of years about the alleged death of Australian manufacturing, you might be surprised to find investment was been close to steady.
The manufacturing CFOs' third estimate for this financial year is $8 billion – 6.5 per cent down from the June estimate last year. The slide is continuing.
Capex: Manufacturing
Source: ABS
It is a little encouraging though that estimate 3 is up 11 per cent on estimate 2, so the gap between last year's estimates is at least narrowing. We could yet end up with another close-to-flat result.
The important thing for keeping the industry's plight in perspective, though, is how small it is – eight or nine billion out of the $150 billion or so non-resources total, or the likely $230 billion national total. (Mining's estimate 3 for this year is $81.4 billion.)
While it can be very hard for the individuals involved, the coverage given to the obvious occasional high-profile manufacturing job losses then is rather disproportional if the industry accounts for less than 4 per cent of new capex. That of course doesn't stop politicians grandstanding about, say, 350 jobs to be shed at BlueScope in a national labour force of 12 million.
What's more, like Australia's unsung heroes in the services sector, non-resources investment is growing despite the headwind of a stubbornly strong Australian dollar. Like the Reserve Bank, we can only hope what might be achieved by the animal spirits if they finally get a currency tailwind.
