Construction Work Done — Q2 | By the numbers
- Total construction work done (private and public sectors) declined by 0.7% in the June quarter to $50.129bn, whereas the median estimate was for a significant fall of 7.0%. Activity in Q1 was revised higher to +0.7% from a 1% fall. In annual terms, the overall decline slowed to -2.2% from -4.4% (revised from -6.5%).
- The headline results were;
- Residential work -5.5%q/q to $16.643bn (-12.1%Y/Y)
- Non-residential work -1.5%q/q to $11.774bn (+6.2%Y/Y)
- Engineering work +3.8%q/q to $21.712bn (+2.2%Y/Y)
Construction Work Done — Q2 | The details
The onset of the pandemic followed by the national shutdown from late March to early May had a relatively modest impact on the construction sector with activity falling by 1.1% over the first half of the year. But the outlook is another matter entirely given that weak economic conditions now ensue and uncertainty is highly elevated, meaning that firms could be more likely to delay or shelve planned projects.
The surprise in today's release was that activity in the private sector was more resilient than expected with a flat outcome in Q2 (0.1%) following a 1.2% increase (revised from -0.6%) in Q1, though that still left the level of work done down over the first half (-0.7%). Engineering work posted a strong 8.6% lift after rising by 2.1% in Q1, with much of this coming from New South Wales and Western Australia, the latter likely pointing to the effects of the mining investment cycle starting to turn higher. Against this, private building work contracted sharply in Q2 falling by 4% after a modest 0.8% lift in Q1, in which non-residential work softened (-0.7%) and the downturn in the residential construction cycle intensified (-5.6%).
New home building pulled back by a further 5.6% in Q2 to be down by 13.6% through the year, while alteration work fell by 5.7% as than annual pace swung from 4.6% to -1.1%.
In the public sector, construction activity declined by 2.5% over the first half as more accelerated weakness came through in Q2 (-3.2%) after a soft Q1 (-1.1%). This left the level of activity near-flat over the year (-0.4%). Public building works pulled back by 3.1% in Q2 (3.6%yr), while engineering work contracted by 3.3% (-1.9%yr). Governments in Australia have indicated that infrastructure projects will be fast-tracked and this will help to smooth the impacts of the ongoing downturn in the residential construction cycle and likely weakness in commercial work as the pandemic weighs of firms' investment plans.
A summary of the state-based detail is provided in the table, below. As touched on earlier, the standout outcomes were the upturn in engineering work in New South Wales (8.8%) and in Western Australia (10.4%). Residential work is in mired in weakness across the nation and the effects of the pandemic through its impact on migration flows is likely to lengthen the duration of the downturn. Meanwhile, Victoria is likely to show a much more significant decline in Q3 as the most recent shutdown there has severely limited the number of workers permitted on sites.
Construction Work Done — Q2 | Insights
The takeaway from today's report is that the impact of the initial phase of the pandemic and the containment measures that followed had a relatively modest impact on the construction sector, and this is backed up by the detailed labour force and payrolls data that have shown that job losses were much smaller than in several other industries. However, there are significant heads going forward, notably in residential and commercial construction due to weak economic conditions and elevated uncertainty, though engineering work is likely to provide some offset in public infrastructure projects and the projected upturn in the mining investment cycle after several years of decline.