From UBS on yesterday’s construction work done:
Q3 construction jumps 2.7% in Q3…best q/q in almost 2 years
Real construction work done rose 2.7% in Q3, after an upwardly revised +0.1% in Q2 (was -0.3%), a better result than expected (UBS: 0.0%, mkt: +0.5%). The y/y pace rose to +1.3%,after being near flat in 1H13 (Chart 1). Private construction was even stronger, +4.1%, its strongest in almost 2 years (while public fell 2.7%).
Both engineering and non-resi work rise…housing flat on weak alts & ads
By industry, the strength was broad-based across engineering (+3.5% q/q, though still flat y/y at-0.7% after -2.1%) and non-residential building (+3.7% q/q, to be up 7% y/y, Chart 2). Thestrength was driven by the private sector, with private non-residential construction up 6% q/q(lifting the y/y to 2.7% from -0.1%). In contrast, residential activity was ‘flat’ again with a 0.5%rise in new work offset by a 3% fall in alts & ads. Public sector activity was particularly weak,retracing 2.7% (after +1.4%), albeit its y/y improved to -4% from -7%, its best in 3 years (Chart 6). By State, only NSW registered a fall in Q3 (-7% q/q, -10% y/y), with broad-based gainselsewhere (Chart 5). The strongest rises came from QLD (+10% & +12% y/y), TAS (+7% & +5%y/y) and WA (+4% & +1% y/y) – the only states still with positive y/y’s – followed by SA (+3%&-3% y/y) & VIC (+1% & -2% y/y).
Implications – construction is not collapsing in 2013
Today’s construction data for Q3 significantly beat expectations, particularly for the private sector. While overall activity in the residential sector is labouring under weak ‘alts & ads’ despite moderate gains in new home building, private non-resi building and engineering work expanded strongly in Q3. This is despite clear evidence the pipeline of future work will be winding down over the next couple of years (as today’s BREE data attest). Nonetheless, GDP re-weighting the data suggests non-residential construction rose 5½% in Q3, while residential activity fell 1¼%, adding a net 0.2%pts to our GDP forecast. We await tomorrow’s equipment spend for Q3, but for now, next week’s Q3 GDP print appears unlikely to be below our current 0.6% (+2.4% y/y) forecast, and could possibly be higher.
That’s about right. Retail volumes improved in Q3 and exports kept on keeping on so the risks to Q3 GDP may be on the upside.
