Australia: Capacity utilisation rebounded, supporting solid capex - NAB

According to NAB’s latest quarterly business conditions survey, capacity utilisation rebounded in Q1 for Australian economy, to 81.9%, recovering the ground that was lost over the past couple of quarters.

Key Quotes

“Less spare capacity is consistent with the solid (or improving) result in the Survey with regard to labour demand and business investment.”

“Mining and wholesale are showing capacity utilisation rates that are furthest below the long run average, although there has been a noticeable improvement in mining that is consistent with stronger commodity production in the final stages of the mining investment cycle. Meanwhile, retail and FPB services are highest above. With capacity utilisation now up from their 2012-13 lows, there is growing evidence of pass-through to investment decisions. Capex spending measures from the NAB Survey are looking good, especially when it comes to capex spending intentions which picked up even further in Q1.”

“According to the capital expenditure measure included in the NAB Survey, business investment activity in Q1 partially recovered from the decline seen in the previous quarter – sitting above the long-run average. Mining (up 17) and wholesale (up 13) saw the biggest improvement in capex during the quarter, while transport deteriorated the most (down 6). Nevertheless, the capex index is positive for all industries but retail, and was especially strong in recreational & personal services (+19).”

“When asked about their future capex plans, firms in the NAB Survey remain more upbeat than the ABS Capex Survey, although this partly reflects the differences in the industry mix across the two surveys, with the ABS version not including key services industries such as health, education and some community services. The NAB capex index for the next 12 months suggests investment growth should already be stronger and holding at relatively elevated levels. That said, the National Accounts have been suggesting stronger non-mining investment that is more consistent with the NAB Survey. Meanwhile, firms have been reporting little to no change in their required rates of return for new investment, suggesting that other factors are  offsetting highly accommodative monetary policy.”