Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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Thursday, 30 May 2013

Gloom-mongers put jubilation on hold

Very interesting data sets today, indeed!

Firstly, capital expenditure for the quarter was weak (total seasonally adjusted capex of $38,510 million - down 4.7% on the previous quarter), which initially saw the Aussie dollar tumble to a '95 handle' as the headline numbers were digested by currency markets.

Graph: Total asset, total industry

Source: ABS

However, you will remember that I noted here Westpac's forecast range for 2013/14 expected expenditure of $145 billion (weak) to $157 billion (positive). Well, we hit right at the top end of the range:

"Estimate 2 for total capital expenditure for 2013-14 is $156,467 million."

The market latched on to this and the dollar did an immediate about face and headed back up. 

The shaded bars represent full year expectations. You will see that the forecast for 2013/2014 is lower than 2012/13, but given the phenomenal boom in capex over the past half decade leaves it at a high level, (disclaimer: only should it prove to be in any way accurate, which is by no means a given):

Financial year actual and expected expenditure - Total Capital Expenditure

Source: ABS

Given the planned jubilation of the recessionists, if the forecasts are accurate, this would be excellent news for those who want Australia to prosper. 

Then the building approvals report smashed expectations of a 4% increase and showed an increase of 9.1% on the month, which equates to a seasonally adjusted 27.3% increase on the prior year (18.9% y/y for houses, and a significant 37.2% y/y for other private sector dwellings excluding houses). Though again, it makes more sense to place emphasis on actual construction rather than approvals:

Source: ABS

This fired the dollar all the way back up to 96.7 cents before it eased back a little.

So in summary, combined with a lower Aussie dollar, this is potentially very good news for Australia, but we do need the actuals to match the estimates in the pipeline.

If the capex estimates for 2013/2014 proves to be approximately right then the rest of the economy, including household consumption, has at least another year to start swinging into action. The building approvals data was one step in the right direction.