Construction Work Done — Q3 | By the numbers
- Total construction activity across the private and public sectors fell by 0.4% in the September quarter to $50.85bn, with markets anticipating a larger fall of 1.0%. Work done in Q2 was revised to show a smaller contraction of 2.8% compared to the 3.8% decline initially reported by the Bureau. Over the year, the pace of contraction slowed from -9.8% to -7.0%.
- The headline results in Q3 were;
- Residential work -3.1%q/q to $18.27bn (-10.6%Y/Y)
- Non-residential work +4.0%q/q to $11.44bn (+5.3%Y/Y)
- Engineering work -0.2%q/q to $21.15bn (-9.6%Y/Y)
Construction Work Done — Q3 | The details
The downturn in Australia's construction cycle extended to a 5th straight quarter, with total activity falling by 0.4% in Q3 to be down by 7.0% through the year. The weakness centres on residential construction, with the non-residential sector bouncing back from a soft patch, while the trough for engineering work looks to be in.
Activity in the private sector fell by 2.1% in Q3 to $38.65bn as the annual decline eased from -8.6% to -7.6%. This reflects sharp declines from both residential and engineering work, though non-residential activity is trending higher after a period of weakness in the second half of 2018.
The rollover in the private residential construction cycle continued at pace in Q3 as activity fell by 3.0% to accelerate the decline in annual terms from -8.1% to -10.4%. On that basis, the sector mired in its deepest downturn in 18 years. New home building contracted by 3.4% in Q3 to mark a 5th consecutive negative quarterly outturn, while the decline in activity over the year steepened from -8.5% to -10.7%. Alteration work was broadly flat in Q3 (-0.2%) but the contraction in annual terms deteriorated from -4.9% to -7.9%. Dwelling approvals fell by more than 7% in Q3 and were down by 21% year-on-year, indicating that further weakness in the sector is likely to be ahead.
The non-residential sector is a bright spot for construction work with activity lifting by 4.1% in the quarter to be up by 6.4% over the year. This segment is being supported by a recent uptrend in approvals for projects such as offices and other commercial buildings.
Private engineering (or infrastructure) work fell by 4.6% over the quarter and was down by 11.4% over the year. However, the outlook is supported by rising investment intentions in the mining sector and tomorrow's Capital Expenditure survey will provide more insight into this.
Turning to the public sector, activity lifted by 5.4% in Q3 to bring to an end a run of four previous quarterly contractions. This slowed the decline in annual terms from -13.4% to -5.1%. The resumption of the uptrend in public works was driven by a 6.4% lift in infrastructure work (-7.0%Y/Y) and a more modest 2.6% rise from building activity (+0.4%Y/Y). The recent slowdown in public infrastructure work likely reflected the completion of earlier projects, but with an elevated pipeline of work to come activity is likely to strengthen from here.
The state-based outcomes are displayed as a heatmap, below. This highlights that the weakness in residential construction is evident across all states outside of Victoria, though at the same time the lift in non-residential work has been spread across most states some there has been some offset occuring. Engineering work has been soft across the mainland states over the past year, though activity in New South Wales and Victoria looks to have rebounded in this most recent quarter.
Construction Work Done — Q3 | Insights
Overall, the outcome from today's report was better than anticipated, but construction will drag modestly from GDP growth in Q3. Activity continued to contract in residential construction and will persist well into 2020 given the ongoing weakness in dwelling approvals. The rollover in the residential sector is being moderated by an improving non-residential cycle and a renewed uptrend in public infrastructure work.
