Resource Slowdown Hits Construction Activity

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Friday, August 30th, 2013
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The slowdown in the resources sector in Australia continues to impact the construction industry, with the latest figures showing a drop in the dollar value of building and engineering work done throughout the country – albeit with some signs of improvement in the housing sector.

In the June quarter, the seasonally adjusted value of construction work done throughout the country dropped 0.3 percent to come in at $50.773 billion, according to ABS figures in its Construction Work Done report.

Though all sectors recorded a decline, worst hit was non-residential building, where the value of work ($8.202 billion) shrank by 1.3 percent to be down 3.4 percent compared with the same month last year amid a continued easing in public sector investment and a relatively subdued private market.

Engineering, too, (down 0.2 percent for the quarter or 2.1 percent year-on-year) has been badly hit amid cancellations in resource projects, whilst the housing sector (down 0.1 percent in the quarter but up 4.3 percent year-on-year) has shown signs of improvement from a low base.

The latest figures come amid increasing evidence about the impact tough building conditions have had on companies exposed to the construction sector.

Recent weeks have seen significant financial losses announced by Boral, BlueScope, Arrium, AV Jennings, CSR and others as weak building conditions both in Australia and around the world caused a massive string of write-downs.

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But whilst commercial building and civil construction remain weak, other statistics out in recent days point to increasing signs of momentum in the housing sector.

First, housing affordability jumped to its highest level since before the GFC – a positive sign for housing construction because all other things being equal, it points to a healthy situation regarding the financial capacity of consumers to purchase new loans.

Furthermore, whilst the latest figures show a 4.7 percent drop in sales of new homes in July, new home sales have risen during eight of the past ten months, and Housing Industry Association Chief Economist Harley Dale says volumes of new home sales are ‘reasonable’ albeit well short of ‘healthy’

“There has been strong upward momentum to new home sales since the record lows plumbed in 2012” Dale says.

“One monthly fall, while disappointing, does not really change the story.”

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