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Economists look on the bright side

AAP logoAAP 2/09/2016 Garry Shilson-Josling, Economist

Economists have done their best to look on the bright side of retail trade and business investment data that could easily have been seen in a gloomier light.

Retail figures from the Australian Bueau of Statistics were soft - there was no change in seasonally adjusted terms in what consumers spent on July.

But National Australia Bank's Ivan Colhoun said caution was needed in interpreting the numbers, in view of some "unusual outcomes", notably a steep drop in department store sales.

"Given the volatility in so many parts of today's release it's probably dangerous to read too much into today's data," Mr Colhoun said.

JP Morgan's Tom Kennedy noted weak price growth underlying the slow trend in retail turnover.

"The silver lining, however, is that much of the drag to date has owed to weaker prices, rather than falling volumes, meaning the contribution from household consumption to real GDP growth has remained decent," Mr Kennedy said.

One key factor for GDP growth is business investment, so economists were keen to examine the bureau's quarterly survey of capital spending plans for any sign of the long-awaited pickup in investment outside the fading mining sector.

It was the third round of the survey for 2016/17 and most economists liked what they saw.

A sizeable upgrade in projected investment is normal between the second and third rounds.

But Scott Haslem at UBS zeroed in on the size of this year's, from $92.3 billion to $105.2 billion.

"The 15 per cent jump from the second estimate was well above the 10-year average (10 per cent), and the best upgrade of any capex survey in six years," Mr Haslem said.

Based on the average change between projections and final outcomes, the outlook for capex had improved, St George Bank's Janu Chan said.

"The signs of improvement for the non-mining investment outlook were the most encouraging aspects of this release," Ms Chan said.

Even so, she warned that it was important not to get too carried away with the brighter outlook, because the figures still don't imply a sustained recovery in the non-mining sector.

"Further improvement in investment spending would likely be necessary for a pickup in economic growth," she said.

NAB's Tapas Strickland agreed that the outlook was "a little more positive" and pointed to the limited coverage of the survey.

"One caveat to the capex data is that it has poor coverage of the important services sector, with the survey only comprising around half of total actual investment in the non-mining sectors," he said.

The ABS survey excludes sizeable parts of the private sector, including agriculture, education and health, as well as investment in software, patents, and other non-physical assets.

"So while the capex survey's more positive than last time, the NAB business survey is even more optimistic and is suggestive of non-mining business investment increasing by around eight per cent a year," Mr Strickland said.

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