Construction activity slumps in Q3

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By Leith van Onselen

The ABS has released data on the value of construction work done for the September quarter of 2015, which registered a seasonally-adjusted 3.6% slump in total construction activity over the quarter and a 3.7% decline over the year.

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The 3.6% quarterly fall in construction activity was driven by engineering construction (mostly mining-related), which slumped by 7.3% in real terms. By contrast, building construction rose by 0.6% over the quarter, driven by a 2.0% rise in residential construction partly offset by 1.9% fall in non-residential construction:

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Residential construction – the great hope as the mining investment boom unwinds – rose by 2.0% over the quarter and was up by 12.4% over the year (see next chart).

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The slump in construction nationally was driven by a large $1.3 billion (9%) drop in Western Australia, with New South Wales (-$0.4 billion) and Queensland (-$0.3 billion) also recording decent falls:

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Clearly, Western Australia continues to defy gravity as its three major resource projects – Gorgon LNG, Wheatstone LNG and the Roy Hill iron ore mine – ramp up activity in order to meet their completion deadlines.

Looking ahead, engineering construction is likely to fall over the foreseeable future as large mining projects (particularly LNG-related) are gradually completed over the next 18 months.

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More worryingly, approvals data suggests that dwelling construction will likely turn down from mid-2016.

Hence, the construction industry is likely to face a double-hit in 2016-17 from both falling mining investment and falling dwelling investment, dealing a major shock to the economy and employment.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.