ABS data released today confirms leading global cost and property cost consultant, Rider Levett Bucknall's view that the current cyclical decline in construction activity may not be as severe as has been forecast.
Dr. Andrew Wilson, Senior Economist at Rider Levett Bucknall commented, "The ABS Work Done data released today highlights the industry may be in better shape, actually and prospectively, than has been premised in some quarters."
The ABS data reveals that Australian construction activity undertaken in the March quarter 2009 fell by 3.7% compared to the December quarter 2008 and all sectors reported a decline in workload with residential construction recording the largest fall in value of 6%.
Industry workloads however, remain at comparative high levels with only residential construction activity levels below those for the March quarter 2008 (4.6%) Annual activity comparisons reveal that for the year ending March 2009, construction workload was 9.3% above that recorded for the year ending March 2008. Engineering construction was a significant contributor to this outcome with an annual rise of 16.53%
The ABS data reveals the nature of the Australian construction industry within the context of a now evident significant national economic downturn. Importantly, this data provides some foresight into prospective construction labour shedding and, given the strong economic linkages that construction has with the general economy, the impact on future general Australian unemployment levels through the multiplier effect.
Dr Wilson continued, "Given the high levels of skilled construction worker shortages evident in most state markets over the past few years - a catalyst for numerous 457 visa based construction industry worker recruitments which are still continuing - the level of reduced production reported by the ABS over the past quarter compared to the previous quarter may not readily translate into significant industry-wide labour shedding."
"Productivity improvements as a result of a more balanced match between labour demand and supply - reduced overtime etc - will act as a bulwark to unemployment in the short term," he said.
The decline in activity for non-residential construction is significantly less severe than that signalled by building approvals data that has been in free fall for this sector since late 2007. This contrast is due to the high level of planned activity at the peak of the previous cycle; and the severe impact of the deterioration of global economic conditions, associated financial restrictions and collapse of developer sentiment.
Non-residential building approval levels may be expected to more closely conform to the nature of local fundamentals as fear dissipates and risk taking re-emerges in the market place through 2009.
Encouragingly, non-residential building work done in the March quarter 2009 showed the smallest quarterly decline of any sector (2.1%) and was 1.3% above the level of the March quarter 2008 and 5.7% higher in annual terms compared to the year ending March 2008.
"The re-emergence of more stable activity level outcomes will be influenced by the various infrastructure spending packages initiated by Australian Federal and State governments." said Dr Wilson
"Although the stimulus packages represent only a small fraction of the workload capacity of the industry their true value may lie in the stabilisation effect and confidence generation rather than the capacity to replace the decline in construction activity created by the deterioration of local and global economic conditions."
"The real question remains as to when a sustained generalised construction recovery will emerge in Australia. Rider Levett Bucknall believes this will be sooner rather than later."