September quarter construction figures released by the ABS showed a fall of 3.6%, down from the June quarter’s rise of 1.6% and less than the -2.0% result expected by markets. 10 year bond yields dropped by 4-5bps on the day although part of the decline was largely on the back of offshore yields falling.
In the June quarter, WA’s mining sector, in particular the construction of the Roy Hill iron ore mine and the Gorgon LNG projects, was responsible for what was a higher-than-expected result. The thinking at the time was the construction spending figures would drop away once these projects went back to less frenetic levels of activity after making up for lost time. As expected, WA’s contribution to construction was down 8.5% in the September quarter but UBS noted how the other states also fell by a combined 1% for the quarter and 7% for the year. Public sector construction activity also fell but it was no longer in double-digit territory.
Nationally, the residential building segment was up 2%, while the non-residential segment was down 1.9% for a total building construction increase of 0.6% over the quarter. The -7.3% change in the engineering segment reversed the June quarters large increase.
UBS said the figures implied the Australian economy was not past what they described as the “capex cliff”. However, the investment bank noted how even in the face of the ongoing drag on growth in the construction sector, other sectors such as net exports were likely to provide “upside risk” to Q3 GDP. 