Record construction in three states
Construction work done
Construction activity: Construction work done fell by 1.9 per cent in the March quarter after a 2.1 per cent fall in the December quarter.
Record activity: In the 12 months to March, construction work done was at record highs in NSW, South Australia and Tasmania.
Construction inflation: Construction costs rose by 0.1 per cent in the March quarter, with building costs flat and engineering costs up by 0.4 per cent. On the year, construction costs were up 3.3 per cent, down from the 9-year high of 3.6 per cent in the December quarter.
The data on construction work is important for builders, building material companies and developers.
What does it all mean?
• Nationally, construction activity eased for the third straight quarter in the March quarter. But construction was up in three states. And looking at work done over the entire twelve month period to March, construction activity was at record levels in three states. The amount of construction done each quarter has doubled over the past 17 years.
• While construction costs in the engineering sector continue to lift, 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.
• Engineering work fell by 3.9 per cent in the March quarter with declines across all regions except NSW and South Australia. In Western Australia, engineering work done was at a 13½-year low with Northern Territory engineering work near 8-year lows. But looking ahead, the significant amount of new transport infrastructure projects across the nation will boost engineering work in 2019.
What do the figures show?
• Construction work done fell by 1.9 per cent in real (inflation-adjusted) terms in the March quarter. Work done is down by 6.0 per cent on a year ago.
• Public sector construction work fell by 3.7 per cent in the quarter and private sector activity fell by 1.3 per cent.
• Construction work fell across five states and territories in the March quarter: NSW (up 0.7 per cent); Victoria (down 2.2 per cent); Queensland (up 1.6 per cent); South Australia (up 3.3 per cent); Western Australia (down 10.8 per cent); Tasmania (down 4.7 per cent); Northern Territory (down 28.1 per cent); ACT (down 3.3 per cent)
• Engineering work fell by 3.9 per cent in the March quarter, and is down 12.4 per cent over the year.
• Commercial (non-residential) building rose by 3.6 per cent in the March quarter and was up 3.1 per cent on the year.
• Residential building fell by 2.5 per cent in the March quarter and was down 3.2 per cent over the year. Alterations & additions fell by 4.4 per cent in the quarter, while new residential work fell by 2.3 per cent.
• Construction costs rose by 0.1 per cent in the March quarter, with building costs flat and engineering costs up by 0.4 per cent. On the year, construction costs were up 3.3 per cent, down from the 9-year high of 3.6 per cent in the December quarter.
• Annual building inflation was 2.4 per cent and engineering inflation was 4.5 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?
• While construction activity has eased, the amount of work still to be completed is at historically-high levels. In the engineering sector, demand for workers and resources is pushing up costs. In fact engineering costs have lifted by 4.5 per cent over the past year.
• Builders and developers need to watch fluctuating activity levels across regions while at the same time taking action to trim costs where possible.
• Despite easing in some parts of the country, the amount of construction work completed over the past year has never been higher in three states – NSW, South Australia and Tasmania. And activity is only a smidgen down from record levels in Victoria.
• CommSec expects interest rate cuts in both June and August. The Reserve Bank believes the economy can grow at a faster pace (and unemployment can fall further) without causing an inflation break-out.
Published by Craig James, Chief Economist,CommSec