Australian construction activity disappointed expectations posting a 3.8% fall in the June quarter as an easing in La Nina was unable to generate a rebound. Capacity constraints remain pressing and are holding back the pace of work, particularly in the residential sector for detached homes.
Construction Work Done — Q2 | By the numbers
- Construction work done contracted by 3.8% in the June quarter, a large miss on the consensus estimate for a 0.7% rise. The decline in Q1 was revised to -0.3% from -0.9% initially reported. Activity fell by 4.3% over the year.
- Across the categories;
- Engineering work -2.7%q/q to -4.1%Y/Y
- Building work -4.6%q/q and -4.4% through the year, which includes;
- Residential work -6.8%q/q and -7.6%Y/Y
- Non-residential work -1.1%q/q and +0.6%Y/Y
Construction Work Done — Q2 | The details
Capacity constraints continue to pressure the construction sector leading to a sharp 3.8% fall in activity for the June quarter. A rebound was expected after heavy rainfall on the east coast restricted construction work in the March quarter. Building work was down by 4.6%q/q and engineering work by -2.7%q/q.
In the March quarter, activity across New South Wales and Queensland fell by 1.6%, as both states experienced substantial rain and flooding. A rebound failed to materialise in Q2, activity falling by 2.1%. However, construction activity also fell in the other states including large declines in Western Australia (-5.8%) and Victoria (-4.8%), pointing to the headwinds from capacity constraints.
Driving Q2's fall in building work was residential construction, in which private sector activity contracted by 6.9% quarter-on-quarter. New home building saw a 7.7% fall while alterations declined by 1.9%. Specifically, work done on building detached homes plunged by 13.9%q/q. Capacity constraints are slowing the progress in working through what is a very substantial pipeline.
Momentum in non-residential construction work stalled over the first half of the year (-0.6%), after the sector had put together a strong rebound in activity from the second quarter of last year. Labour shortages and weather disruptions have also affected commercial building. Relatedly, engineering work was down 4.1%q/q, its largest fall since the Covid onset.
In the public sector, construction activity contracted by 1.7% in the June quarter on the back of declines in both building (-3.3%) and engineering works (-1%). Activity remains elevated notwithstanding, reflecting the bringing-forward of projects by state governments in support of the pandemic economic recovery.
Construction Work Done — Q2 | Insights
A very weak report that points to residential construction subtracting from June quarter GDP. The weakness relates to capacity constraints. Australia's residential construction pipeline is substantial with record numbers of homes under construction, surging in response to Covid stimulus measures and coming after a downturn in home building before the pandemic. Because of the labour and materials shortages, the pace at which the pipeline can be worked through is uncertain. Rising building costs, the RBA hiking cycle and falling housing prices may see some of the work in the pipeline shelved.
