Aside from engineering and architectural design, one of the earliest requirements of a building project is to obtain approval from the relevant statutory body. As a result, building approvals data is a leading economic indicator of future construction. While not all projects which have been approved are completed, all completed projects have been granted approval. Approvals data thus provides a useful indicator of future construction.
The latest building approval figures have been released by the Australian Bureau of Statistics and figures for July reversed most of the gains from June. Seasonally-adjusted, total approvals fell by 5.2% in July, which is a larger fall than the expected 2.0% and a large drop from June’s revised growth rate of +6.8%. On an annual basis, total approvals fell by 5.6%, which is down from June’s comparable figure of 1.8% after revisions and less than the expected 2.5% contraction.
Westpac, senior economist Matthew Hassan said this latest report may be indicative of what is to come. “Overall…the July report is a weak one for a new building with the detail starting to move more in line with our expectation of a renewed decline in this segment.”
Reactions of local financial markets were mixed but as economists and commentators were more interested in the capex data released by the ABS at the same time, it is difficult to separate out the effect of one report as opposed to another. By the end of the Australian trading day, 3-year yields were 1bp higher at 2.03%, 10-year yields had increased by 2bps to 2.57% but the local currency was 0.25 US cents lower at 72.80 US cents.