Construction trends reveal economic rebalancing
CONSTRUCTION figures today summed up the economy’s “rebalancing” pretty well, with activity fading in the sector dominated by mining, and picking up elsewhere, especially in home building.
The figures came in three parts.
The first showed residential building — adjusting for price changes and seasonality — growing well in the June quarter.
The 2.2 per cent rise meant the volume of home-building — including extensions and additions — was nearly 10 per cent above where it was a year earlier.
The second part was non-residential building — offices, shops, hotels, factories and the like.
Activity in this sector was barely changed in the quarter, rising of just 0.5 per cent, while annual growth was tepid at just under 3 per cent.
Taken together, building activity was up by 1.5 per cent for the quarter and nearly 7 per cent for the year.
Residential building and the parts of non-residential building not tied to the resources sector are seen as crucial to economic growth as the resources investment boom fades.
So growth in these sectors is good news.
The bad news is the third part of construction, what’s called engineering construction — including ports, roads, bridges, mines and pipelines.
There, activity fell by 3.1 per cent in the quarter to be down by nearly six per cent for the year.
That was enough to overwhelm the modest rise in building activity.
As a result the total volume of construction work, building and engineering combined, fell by 1.2 per cent in the quarter to be marginally lower than a year earlier.
It was the weakest quarter for construction work since the final quarter of 2011, two and a half years earlier.
Ordinarily, that might be seen as evidence the “rebalancing”, or “transition” as some economists have begun to call it recently, is not going according to plan.
But it’s probably not as bad as the construction figures might suggest.
That’s because a given increase in activity in the parts of the construction sector that are growing — residential and non-residential building — will add more jobs than a same-sized fall in activity in the engineering construction sector.
It will in effect be the reverse of the disappointing job-creation that’s come with the resource investment boom. In the five years to mid-2012, when engineering construction peaked, total construction activity rose an average of by 9 per cent per year.
Despite that phenomenally strong growth rate, employment in construction crawled ahead by less than 1 per cent annually. At the time it was the slowest five years of jobs growth in the sector since the tail-end of the early 1990s recession.
Since then, even though construction activity has fallen by an average of more than 1 per cent a year, employment in construction has actually picked up by a strong 2.7 per cent annually.
And that’s thanks to the new bias in construction toward building, and home-building in particular.