Construction Data Shows Strength and Weakness

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Tuesday, February 3rd, 2015
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There is both weakness and strength in the latest construction approvals figures.

Strength in the number of new homes approved to be built, but persistent weakness in parts of the non-residential sector.

At a seasonally adjusted 17,753, residential approvals in December was only three per cent below the record high of 18,358 set the month before.  But in another key, although often neglected, aspect of the figures, the value of non-residential building approvals fell back to $2.05 billion in December.

That is below the $2.5 billion average of the preceding 12 months, and the December result is not a rogue figure. Approvals for non-residential buildings fell from $37.7 billion in 2013 to $31 billion in 2014.

Detailed figures from the ABS, although not seasonally adjusted, suggest much of fall is due to subdued activity in construction of office buildings.

Private sector office buildings make up less than one fifth of the total value of construction.

Even so, that component accounted for more than half of the $6.7 billion fall in approvals in the non-residential sector, with a drop of $3.5 billion, or 45 per cent, from $7.8 billion in 2013, to $4.3 billion in 2014.

Public sector building work accounted for another $2.5 billion of the overall drop in 2014, slipping 27 per cent from $9.1 billion to $6.6 billion.

That’s been a recurring theme in the Australian economy in recent years – the effect of restrained government spending offset the Reserve Bank of Australia’s efforts to stimulate the economy using low interest rates.

 

By Garry Shilson-Josling
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