Housing Gives Construction a Boost

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Thursday, May 29th, 2014
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Total construction work done bounced back in the first three months of the year, thanks to a surge in housing.

Construction work rose 0.3 per cent in the March quarter, after a 1.1 per fall in the December quarter, official data showed.

JP Morgan economist Tom Kennedy said the figures showed some encouraging signs that the economy was rebalancing away from mining investment.

Residential building work rose 6.8 per cent, non-residential work fell 1.5 per cent and engineering work done, which includes mines, roads, bridges and the like, was down 1.6 per cent in the quarter.

“Engineering, which is typically resource-related and has been going very strong for the past decade, is a very large component of total construction, it makes up roughly two-thirds, so really if that moves violently one way or the other, it has quite a large bearing on what happens to total construction work done,” Mr Kennedy said.

“It looks like that decline today has been a drag on the headline figure.

“There are some encouraging signs that we are seeing a rotation away from resource-sector led investment and building work toward the residential component.

“This is one of the first pieces of the GDP accounting that we get which suggests that at least on the building side, things are still fairly subdued and a little bit underwhelming.”

National Australia Bank senior economist David de Garis said the data showed that housing construction is ready to take over from mining investment as the key driver for the economy.

“We got a nice kick in dwelling investment, and that follows all the leading indicators that housing and apartment construction is picking up,” he said.

“The engineer construction did decline but not as much as you would have expected, maybe that will mean we’ll see sharper declines in the next 18 months.”

Mr de Garis said the figures could mean that next week’s gross domestic product figures will be a little stronger that previously expected.

“Dwelling investment will be strong but other investment will be soft and consumption will be okay but net exports will be the big contributor in the quarter,” he said.

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