Construction continues to soften

Data for construction work done was released by the ABS this morning, and continues to provide a neat snapshot of a bifurcated economy. 

Total value of construction work done for the June quarter came in at approximately $52bn, down 1.2% on the previous quarter. Expectations were for a 0.5% decline. 

Building rose by 1.5% in seasonally adjusted terms, led again by residential construction. However, this was more than offset by a 3.1% fall in engineering work done (mostly resource sector investment). 

Policymakers’ game plan for tackling the slowdown in resource sector investment activity has been to boost construction in the property sector, especially residential. The uptrend in building activity over the past two years is welcome, and suggests a measure of success for this strategy, even if it’s taken 225bps of RBA slashing to get it moving.

However, it’s also plain enough that home-building is not going to be able to completely fill the open-cut pit left behind by waning mining investment. In addition, current elevated levels of residential construction are being underpinned by high immigration, foreign demand for Australian property assets, and an unusually high rate of participation by domestic investors in the property market. These are not especially healthy characteristics and the risks are growing of a downturn in the property sector occurring at the most inopportune of times for the Australian economy. 

All-important private capital expenditure data out tomorrow, which will shed greater light on activity in the resources space. 

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