Australian construction activity unexpectedly contracted further in the December quarter, with a stimulus-driven boost in residential work unable to offset weakness in the public sector, most notably in engineering work.
Construction Work Done — Q4 | By the numbers
- Total construction work done (private and public sectors) contracted by 0.9% in the December quarter to $51.171bn, weaker than the median estimate for a 1% rise but better than in Q3 -1.8% (revised from -2.6%). Activity was 1.4% lower through the year from -3.3% in the previous quarter (revised from -4.2%).
- The headline results were;
- Engineering work -2.8%q/q to $21.797bn (-0.3%Y/Y)
- Building work 0.6%q/q to $29.374bn (-2.2%Y/Y)
- Residential work 2.7% to $17.865bn (-0.7%Y/Y)
- Non-residential work -2.4%q/q to $11.509bn (-4.5%Y/Y)
Construction Work Done — Q4 | The details
Australian construction activity was soft in the December quarter falling by 0.9% and has contracted by 1.4% year on year, which is a relatively modest outcome given the scale of the disruptions in other sectors from the pandemic containment measures. On these latest figures, a rigid analysis actually has construction activity higher over the first half of the year (1.3%) despite the national lockdown but then contracting over the second half (-2.7%) during what was a time of reopening. But there could be many explanations for this given the lumpy nature of the data, particularly in the engineering component, and we also know that restrictions on construction in the national lockdown were much less severe than what occurred during Victoria's second lockdown over mid-winter to mid-spring.
Work done in the private sector was flat in Q4 (-1.1%Y/Y) coming after a 2.9% fall in the previous quarter, which was impacted by the statewide lockdown in Victoria. Contributing to activity was the residential segment (2.7%qtr) in response to policy stimulus measuures that have had a profound effect. Alteration work advanced 3.6% after a 7.1% rise in Q3 to be up by 10.2% on the level from a year ago, driven by the Federal Government's HomeBuilder $25k grants. New home building lifted by 2.6% in Q4 (-2.7%), but with detached approvals having advanced to record highs on the tailwinds of the stimulus response, much stronger gains should be in order over the coming year.
In fact, a closer look shows that detached new home building has already turned but weakness in higher-density construction, which is less supported by the stimulus and more exposed to the pandemic headwinds from low overseas migration, is weighing on the aggregate figure.
In the other areas, private non-residential work fell 2.9% in Q4 to be 7.9% down through the year reflecting the hit to business investment from pandemic-related uncertainty. Meanwhile, engineering work was weak in Q4 (-1.6%) but was modestly higher over the year (3.4%).
Turning to the public sector, total activity was down 3.6% for the quarter (-2.2%Y/Y), with a concentrated decline in engineering work (-4.6%qtr) and a more modest decline in building work (-1.1%). Despite this weakness, public work is expected to pick up over the coming year following increased investment plans in recent state government budgets.
Construction Work Done — Q4 | Insights
Weakness in public sector work weighed on overall construction activity in Q4, while in the private sector the emerging upswing in residential construction was largely offset by a further decline in non-residential work. Indications are that public investment will turn higher from here, and in the residential sector, particularly in detached housing, work done should be very strong in 2021.
