Construction Work Done — Q1 | By the numbers
- Total construction activity (private and public sectors) declined by 1.0% in the March quarter to $49.481bn against the consensus forecast for a 1.5% fall following on from a 2.9% contraction in Q4 (revised from -3.0%), which left the fall in activity over the year near unchanged at -6.5% from -6.6%.
- The headline results were;
- Residential work -1.6%q/q to $17.245bn (-12.5%Y/Y)
- Non-residential work 0.0%q/q to $11.677bn (-0.3%Y/Y)
- Engineering work -1.1%q/q to $20.557bn (-4.4%Y/Y)
Construction Work Done — Q1 | The details
Coming ahead of significant headwinds associated with the COVID-19 crisis, Australian construction activity declined a little further with a 1.0% contraction in the March quarter. The second half of 2018 marked the start of a downturn in the nation's construction cycle with activity now down by 12.5% over the period driven by weakness in residential activity and engineering work.
Private sector construction activity declined for the 5th consecutive quarter, though the 0.6% fall in Q1 was the most modest contraction in that stretch, while the decline in annual terms eased slightly to -8.7%. Breaking this down further, building work fell by a relatively modest 0.9% in the quarter (-9.3%yr) compared to the sharp 4.2% fall in Q4 as commercial work moderated ongoing weakness from residential construction. Non-residential (or commercial) activity lifted by 0.5% in Q1, though it swung negative through the year to -2.2% from 5.1% indicating that the slowdown in approvals in this segment over the second half of 2019 (up 5% compared to +22% in the first half) was weighing on activity.
Residential construction activity contracted for the 7th straight quarter falling by 1.6% to be down by 12.4% over the year. The level of activity has fallen nearly 16% below its most recent peak in Q2 2018 and this has been a significant drag on the national economy, directly subtracting in the order of 0.8ppts from output growth over the period. This has followed a sharp reversal in dwelling approvals that have been trending lower for much of the past couple of years after rising strongly between Q3 2017 to mid-2018. In the March quarter, new home building declined by a further 2.2% (-14.3%yr), while alteration work, which accounts for a much smaller share of activity, lifted by 2.3% (2.0%yr).
Engineering activity in the private sector was stable in Q1 (0.2%) after recording falls in 8 of the 9 preceding quarters that reflects mining investment rolling off as major projects moved through the construction phase. This left activity down sharply on a year earlier (-7.3%).
In the public sector, activity was surprisingly weak falling by 2.5% in Q1, which slowed annual growth from 2.0% to 1.1%. After running up strongly between 2015 and 2018 activity had pulled back between mid 2018 to mid 2019, though that had appeared to be stabilising after a robust second half of last year. Q1's weak result brings that assessment into question, though it would appear likely that fiscal support through infrastructure investment will become a focus for the federal and state governments to help re-start the economy in the post-lockdown period.
Public engineering activity led the overall decline falling by 3.0% in the quarter as annual growth slowed to 0.3% from 1.7%. Meanwhile, public building contracted by 1.4% in Q1, though annual growth actually lifted from 2.5% to 3.1% skewed by a base effect.
A summary of the state-based detail is provided in the table, below, which incorporates both the private and public sectors. Construction activity declined in New South Wales, Queensland and Western Australia over the past year, while Victoria was stable and South Australia and Tasmania saw modest increases.
Construction Work Done — Q1 | Insights
Today's result (-1.0%) came in close to the consensus forecast (-1.5%) as weakness in residential construction and engineering activity continued. Dwelling investment will continue to drag on the economy through 2020, particularly with visibility around population growth extremely limited due to uncertainty over overseas migration, while more insight will be provided on the engineering side in tomorrow's capital expenditure data. The main surprise in this report was the weak result from the public sector with infrastructure and building softening ahead of the pandemic.
