The ABS this morning released engineering construction data for the September quarter of 2013, which revealed an increase in the value of work done, but a reduction in the construction pipeline.
According to the ABS, the total value of engineering construction in real seasonally-adjusted terms rose by 4.3% in the September quarter and by 0.1% over the year, with the private sector more than offsetting falls in public sector construction (see below chart).
You can see the big uplift in activity from 2003 as the commodity price boom took hold, with the key mining states of Western Australia and Queensland driving most of the increased construction activity (see next chart).
There are clouds developing on the horizon, however, with the pipeline of construction projects shrinking, albeit from highly elevated levels. After peaking at $184 billion in March 2012, the pipeline of construction projects – both commenced and yet to begin – has fallen to $143 billion as at September 2013, consistent with the view that Australian mining investment is at or near its peak (see below chart).
There’s nothing new in this release, however, with the ABS’ building activity data, released late last year, foreshadowing today’s result. As shown in that release, the sheer size of engineering construction (read mining investment) dwarfs other forms of construction activity (e.g. residential building), highlighting the near impossibility of housing filling the void as the mining investment boom unwinds (see next chart).
Hence, the commonly used term “mining investment cliff”. It’s coming and it is very big, with negative impacts on both jobs and growth.
