Key data points upwards

September 30, 2016

By Daniel Blizzard, Chief Executive Officer

There are a number of critical data measures that paint a picture of economic conditions for the industrial portion of the Australian economy. While some short-term measures show signs of deterioration, the overall trend is broadly positive.

Importantly, Australia’s year-on-year GDP growth rate for the third quarter of 2016 was 3.3 per cent, accelerating from 3.1 per cent in the March quarter. Given the average is 3.49 per cent, the current rate indicates the economic recovery presently underway is likely to continue. This bodes well for the performance of construction, industrial and manufacturing businesses for the remainder of 2016 and into 2017.

It’s also worth noting National Australia Bank’s business confidence index rose from four points to six points in August, another sign business conditions are improving. As the bank noted in a statement, “The results from this month’s survey remain consistent with our prior view of the economy and the near-term outlook. It points to a patchy, but sustained, improvement in the non-mining economy, with the major services sectors and construction leading the way.”

There are however, a number of other data releases that specifically pertain to the equipment finance sector that are important to understand.

The first is the AIG Manufacturing Index, which is a measure of future orders from purchasing managers in the manufacturing sector. This measure experienced a decline in August to 46.9 from 56.4 in July. Any measure above 50 indicates orders are growing and the average figure is 49.82. This decline was attributed to the lower performance of the food and beverage and textiles and clothing sectors.

Although new orders in the manufacturing sector across the period were down by 7.5 points, new orders are still growing, with this figure at 51.5 (again any measure above 50 indicates orders are improving).

The Australian Construction Purchasing Managers Index also experienced a short-term decline last month. The August figure was 46.6, down from 51.6. But, this figure is also expected to move back into positive territory, with analysts predicting the index will reach 50.6 points in September.

The decline in the August number has been attributed to a drop in new orders, employment and deliveries in this sector. However, during the month there was expanded activity in apartment building, engineering construction and commercial building. This measure is expected to return to positive territory for September, with analysts predicting a figure of 50.7 for the month.

It’s also worth commenting on capital expenditure (capex) in the economy. According to the Australian Bureau of Statistics’ data there was a 2.8 per cent increase in overall new capex in the March quarter to $12.2 billion.

As the ABS noted in its statement, “The trend volume estimate for equipment, plant and machinery rose by 1.9 per cent in the June quarter while the seasonally adjusted estimate rose by 2.8 per cent.”

That aside, Australian businesses are neither pulling back or pushing forward in terms of equipment, plant and machinery acquisition intentions – they are predominantly standing still, according to the results of the latest Alleasing Equipment Demand Index (the Index). In total 61% of businesses indicated they have no intentions of acquiring new equipment for the December 2016 quarter. This incredibly strong trend has been maintained throughout all nine rounds of the Index and is reflected in the latest ABS capex statistics, indicating industries unrelated to mining are slowly taking up the capex demand slack.

So overall, although there is still volatility in the economy, there are signs of continually slow growth, which augurs well for the industrial part of the economy for the remainder of the year.

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