At first glance the latest June quarter construction figures look fantastic. The value of construction work increased by 9.3% over the quarter which is much higher than the 0.9% recorded in the March quarter or the 0.6% in December 2016. Compared to a year ago, June quarter construction was 6.8% higher, which is quite a jump from March’s 12 month growth rate of -5.5%. Bond yields jumped and it was probably not due to the soft building approval figures which were also released. Three year bond yields increased from 1.98% to 2.02% and 10 year bond yields rose 6bps from 2.62% to 2.68%.
A closer inspection of the figures reveals they have probably been inflated by the import of a floating LNG platform. While residential construction fell by $64 million and non-residential construction increased by $102 million, engineering construction leapt by $4.4 billion. The LNG platform is thought to account for most of the increase.
CBA economist Kristina Clifton said the figures suggested a drop in residential construction will be offset by other construction projects. “The residential construction cycle may have peaked. But a lift in non-residential building work and infrastructure will provide an offset to lost economic growth and employment.”
Westpac senior economist Andrew Hanlon agreed. “In other detail, the standout is the upswing in public works, which is a notable growth engine as governments commit to new projects, particularly in transport. Public construction work grew by a further 4.7% in the quarter. Growth has been sustained at a brisk double digit pace, with the annual pace currently 13.7%, matching the 13.6% of a year ago.”