Construction eases from record highs: CommSec

Construction eases from record highs: CommSec
Craig JamesAugust 27, 2019

EXPERT OBSERVER

Construction work done

Construction work done fell by 3.8 per cent in the June quarter – the fourth straight decline. The value of construction work done is 11.1 per cent down on a year ago.

In the year to June 2019 (2018/19), construction work done was at record highs in Tasmania.

Construction costs rose by 0.5 per cent in the June quarter, with building costs up 0.4 per cent and engineering costs up by 0.7 per cent. On the year, construction costs were up 2.3 per cent – the slowest growth in just over two years.

What does it all mean?

In the year to March (the full 12-month period), construction was at record highs in NSW, South Australia and Tasmania. In the year to June only one state can claim record construction work – Tasmania. In 2018/19, Tasmanian construction work topped $3 billion.

While construction costs in the engineering sector remain relatively high, there has been an easing of building inflation in home and commercial building in line with the slowdown of work, especially in the residential sector.

A number of listed companies, such as Boral, have noted that the huge pipeline of infrastructure work, by now, should be offsetting the slowdown in home building. But project delays have meant this isn’t occurring, as shown by the latest data. This clearly is an issue for state and territory governments to ensure the Reserve Bank isn’t fully shouldering the burden for stimulating the economy.

What do the figures show?

Construction work done fell by 3.8 per cent in the June quarter – the fourth straight decline. Construction work done is 11.1 per cent down on a year ago.

Public sector construction work fell by 0.8 per cent in the quarter and private sector activity fell by 4.7 per cent.

Construction work fell across seven states and territories in the June quarter: NSW (down 1.9 per cent); Victoria (down 4.4 per cent); Queensland (down 6.0 per cent); South Australia (down 4.8 per cent); Western Australia (up 1.4 per cent); Tasmania (down 4.1 per cent); Northern Territory (down 12.3 per cent); ACT (down 13.1 per cent).

Engineering work fell by 1.1 per cent in the June quarter – the fourth straight decline. Work done is down 15.9 per cent over the year.

Commercial (non-residential) building fell by 6.6 per cent in the June quarter after rising by 3.8 per cent in the March quarter. Commercial work is down 3.3 per cent on the year.

Residential building fell by 5.1 per cent in the June quarter – the fourth straight decline. Work done is down 9.6 per cent over the year. Alterations & additions fell by 2.9 per cent in the quarter, while new residential work fell by 5.4 per cent.

Construction costs rose by 0.5 per cent in the June quarter, with building costs up 0.4 per cent and engineering costs up by 0.7 per cent. On the year, construction costs were up 2.3 per cent – the slowest growth in just over two years.

Annual building inflation was 1.7 per cent (6-year low) and engineering inflation was 3.3 per cent.

What is the importance of the economic data?

The Bureau of Statistics releases quarterly estimates of Construction work done. The estimates are based on a survey and cover around 85 per cent of the construction work done in the period. Revised estimates will be released in coming months. The data is useful largely for historical purposes but the work yet to be done estimates provide an early warning signal of future activity. The residential work figures give a good early guide to the strength of residential investment in the national accounts.

What are the implications for interest rates and investors?

Those investors that follow companies in construction, engineering and building materials sectors, need to carefully watch for work starting on the bevy of infrastructure projects. Rising home prices may also encourage more residential projects to start in regions of high population growth.

In terms of transport infrastructure, Macromonitor have pushed out the peak of work by 12 months to 2022/23. Queensland is expected to ramp up construction of projects over next year after activity fell in 2018/19.

CommSec expects interest rate cuts in both November 2019 and February 2020. Much will depend on how quickly infrastructure projects can be fast-tracked (and this may require more migrants to fill skilled job vacancies).

Craig James is the chief economist at CommSec. 

 

 

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

Editor's Picks

Coronation Property Group breaks ground at new Chatswood apartment development
MAYD kicks off construction of ultra-luxury ONE Burleigh apartment development in Burleigh Heads
TOGA installs first tower crane at Macquarie Rise as construction gathers pace
Olympic infrastructure fuels residential boom in Maroochydore City Centre
Australian Federal Election 2025: How Labor and Liberal plan to fix the housing crisis