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Victoria leads the way in construction boomConstruction work done; Skilled vacancies
Construction activity: Construction work done rose by 0.2 per cent in the March quarter – the fifth increase in six quarters. Work done was up 5.0 per cent on a year ago. Victorian construction was at record highs.
Construction inflation: Construction costs rose by 0.3 per cent in the March quarter with building costs up 0.5 per cent. On the year, construction costs were up 2.6 per cent (decade average +2.3 per cent).
Skilled vacancies: The Internet Vacancy Index fell by 0.5 per cent in April after increasing for 17 consecutive months, ending the longest run of consecutive monthly increases since March 2011. The index is still 9 per cent higher than a year ago and just off 5½-year highs. The data on construction work is important for builders, building material companies and developers. The job internet vacancies data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK.
What does it all mean?
Quite simply, there is a lot of activity in the construction sector. Homes are being built to meet the needs of a growing population. And the growing population means more offices, shops and hospitals need to be built together with roads and railways. The big question is whether all the work can be done without generating wage and price pressures. The evidence to date is encouraging but the situation needs to be watched carefully.
Certainly there is increasing demand for workers. Vacancies for construction and mining labourers have soared by 84 per cent over just the past year. For construction firms the ability to access foreign labour is important because the necessary workers aren’t available in Australia. But the ‘release valve’ of foreign labour is also important as it prevents wages from soaring, and thus constraining construction costs. Annual construction inflation stands at 2.6 per cent, above the decade average of 2.3 per cent. But it could be worse given the lofty amount of work being done.
The past year was a year of job creation. The period ahead looks like being a period of job market consolidation. And that was to be expected – employment couldn’t sustainably grow by over 400,000 a year. The bevy of workers are now getting up to speed and hopefully this will be accompanied by a lift in productivity. 
What do the figures show?Construction Work
Construction work done rose by 0.2 per cent in real (inflation-adjusted) terms in the March quarter – the fifth gain in six quarters. Work done is up 5.0 per cent on a year ago.
Public sector construction work rose by 2.7 per cent in the quarter while private sector activity declined by 0.5 per cent.
Construction work fell in five of the states and territories in the March quarter. Leading the falls were Northern Territory (down by 8.2 per cent); Western Australia (down 6.9 per cent); ACT (down 7.3 per cent); South Australia (down 1.9 per cent); and Tasmania (down 0.8 per cent).
Construction rose in Victoria (up 6.5 per cent); Queensland (up 2.4 per cent); and NSW (up 0.6 per cent).
Engineering work rose by 1.5 per cent in the March quarter to be 10.3 per cent higher over the year.
Commercial (non-residential) building fell by 2.6 per cent in the March quarter but was still up 5.4 per cent on the year.
Residential building rose by 0.4 per cent in the March quarter but was down 1.3 per cent over the year. Alterations & additions rose by 5.0 per cent in the quarter while new residential work fell by 0.2 per cent.
Construction costs rose by 0.3 per cent in the March quarter with building costs up 0.5 per cent. On the year, construction costs were up 2.6 per cent (decade average +2.3 per cent), down from 2.8 per cent in the December quarter and 3.6 per cent in the September quarter. Building inflation was 2.5 per cent and engineering inflation was 2.7 per cent.
Skilled Vacancies
The Department of Jobs and Small Business Internet Vacancy Index fell by 0.5 per cent in April 2018 after increasing for 17 consecutive months, ending the longest run of consecutive monthly increases since March 2011.
Job vacancies decreased in five of the eight occupational groups in April. The strongest falls were recorded for Sales Workers (down by 1.3 per cent), Labourers (1.0 per cent) and Technicians and Trades Workers and Clerical and Administrative Workers (both down by 0.3 per cent). Job advertisements increased for Machinery Operators and Drivers (up by 0.4 per cent), Community and Personal Service Workers (0.2 per cent) and Managers (0.1 per cent).
Job vacancies fell in six of the states and territories in April: NSW (-0.2 per cent); Victoria (-0.3 per cent); Queensland (-0.9 per cent); South Australia (-0.2 per cent); Western Australia (+1.0 per cent); Tasmania (flat); Northern Territory (-0.1 per cent); ACT (-0.4 per cent).
Over the year the index is up by 9 per cent and just off 5½-year highs. Strongest growth in vacancies over the year was in Western Australia (up 17.4 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.
The Department of Jobs & Small Business releases a monthly Internet Vacancy Index. The index is based on a count of online job advertisements newly lodged on three main job boards (SEEK, CareerOne and Australian JobSearch) during the month. The index is the only publicly available source of detailed data on online vacancies, including for around 350 occupations (at all skill levels), as well as for all states/territories and 37 regions.
What are the implications for interest rates and investors?
Construction-dependent companies have plenty of work. The work may not be local, but it exists for those builders, tradespeople and construction firms willing to travel. Victorian construction work is at record highs and NSW construction was just off the highs in the March quarter. And then there is the host of engineering projects across the nation.
In the past quarter engineering construction work done was around $23 billion with residential building at $18 billion and commercial building around $10 billion. In the March quarter building approvals totalled $31 billion, potentially adding to new work. And according to Cordell, around $28 billion of new projects were added to the construction pipeline in March and April alone. Clearly these are heady times for construction firms.
CommSec expects official interest rates to remain stable until early 2019.
Published by Craig James, Chief Economist, CommSec