Summary: Construction spending down 2.9%, contrasts with expected rise; up 1.8% from March 2023 quarter; ANZ: weakness widespread; ACGB yields increase; rate-cut expectations soften; Westpac: weakness in part reflects shifting volatility rather than signalling broad-based downturn; residential sector down 1.2%, non-residential building down 7.0%, engineering down 2.1%.
Construction expenditure increased substantially in Australia in the early part of last decade following a more-steady expansion through the 2000s. A large portion of the increase came from the commissioning of new projects and the expansion of existing ones to exploit a tripling in price of Australia’s mining exports in the previous decade.
According to the latest construction figures published by the ABS, total construction in the March quarter decreased by 2.9% on a seasonally adjusted basis. The result contrasted with 0.5% increase which had been generally expected as well as the December quarter’s 1.8% increase after revisions. On an annual basis, the growth rate slowed from 9.3% to 1.8%.
“Weakness in construction work done was widespread in the quarter,” said ANZ senior economist Catherine Birch. “The public/private sector split across the data implies, however, less of an impact to our GDP forecasts than the headline numbers would suggest.”
Domestic Treasury bond yields rose nearly uniformly across the curve on the day following the release of April CPI figures and significant rises of US Treasury yields on Tuesday night. By the close of business, the 3-year ACGB yield had increased by 12bps to 4.07%, the 10-year yield had gained 14bps to 4.41% while the 20-year yield finished 13bps higher at 4.71%.
In the cash futures market, expectations regarding rate cuts in the next twelve months softened considerably, although the catalyst was more likely the release of April’s CPI figures. At the end of the day, contracts implied the cash rate would remain close to the current rate for the next few months and average 4.315% through June and 4.35% in August. November contracts implied 4.36%, February 2025 contracts implied 4.32% while May 2025 contracts implied 4.235%, 9bps less than the current cash rate.
“The ABS have been consistently highlighting shifting seasonal patterns in the Labour Force Survey and it is possible that this is also impacting the construction industry,” said Westpac senior economist Pat Bustamante. “This would imply that the weakness in today’s number in part reflects this shifting volatility rather than signalling a broad-based downturn in activity.”
Residential building construction expenditures decreased by 1.2%, a smaller decline than the 4.1% fall in the December quarter after revisions. On an annual basis, expenditure in this segment was 2.8% lower than the March 2023 quarter, down from the December quarter’s 1.8% decrease.
Non-residential building spending decreased by 7.0%, in contrast with from the previous quarter’s 6.8% rise. On an annual basis, expenditures were 0.9% lower than the March 2023 quarter, whereas the December quarter’s comparable figure was +12.0% after revisions.
Engineering construction decreased by 2.1% in the quarter, in contrast with the 3.6% rise in the previous quarter. On an annual basis, spending in this segment was 6.2% higher than the March 2023 quarter, down from the December quarter’s comparable figure of 16.3% after revisions.
Quarterly construction data compiled and released by the ABS are not considered to be of a “primary” nature, unlike unemployment (Labour Force) and inflation (CPI) figures. However, the figures are viewed by economists and analysts with interest as they directly feed into quarterly GDP figures which are next due in early June.