Data wrap - more signs that building activity is easing

In this edition of the Data Wrap for South Australia we cover the latest data on building approvals and construction activity which point to easing conditions in the construction sector, while recent estimates of business investment provide some positive signs for the state economy.

Residential building approvals continue to fall
Building approvals data released by the ABS this morning suggest that residential building activity in South Australia will continue to ease in the short term. The total number of dwelling units approved in trend terms fell by 0.8 per cent in January 2019 to be down 12 per cent over the year. Dwelling unit approvals have been falling steadily since their peak in May 2018.


While the latest dwelling unit approvals data for South Australia are disappointing, approvals have held up much better compared to national trends. The total number of dwelling units approved for Australia fell by 3.2 per cent in January and were down 27 per cent compared to a year earlier. This decline has been broadly based across states and territories, and in part reflects supply returning to more sustainable levels following a ramp up in supply over recent years.

Looking at the building sector more broadly, the total value of building approved in South Australia fell by 2.7 per cent in January to be down 34 per cent over the past 12 months. Over the past year the total value of non-residential building approved fell by 54 per cent while the value of residential work approved fell by 15 per cent.

Construction activity moderates in the December quarter
The latest approvals data follows preliminary estimates of construction activity released by the ABS last week which showed that activity levels in the South Australian construction sector have passed a peak with construction activity moderating in the second half of 2018. Total construction work done in real seasonally adjusted terms fell by 3.4 per cent in the December quarter 2018, which follows a 2.1 per cent fall in the September quarter. In spite of these falls, overall construction activity remained at a solid level by recent historical standards.

The decline in construction activity for the recent December quarter was driven by falls in non-residential building (down 10 per cent) and engineering construction (down 3.7 per cent). On the other hand residential building activity rose solidly (up 5.6 per cent).

The latest results for South Australia are consistent with national outcomes. The volume of construction work done at the national level fell by 2.5 per cent in the December quarter, with all of the mainland states recording falls in overall construction activity.

Business investment
The recent good news regarding business confidence in the state appears to have translated to investment activity, with the latest results from the ABS Survey of New Capital Expenditure indicating that business investment improved toward the end of 2018.

In real trend terms, South Australian business investment rose by 2.2 per cent in the December quarter 2018, reaching its highest level in four years. This improvement was driven by higher spending on both buildings and structures (up 3.0 per cent) and equipment, plant and machinery (up 0.9 per cent).

On a calendar year basis, total business investment in South Australia was up 6.1 per cent in 2018. In comparison, business investment spending at the national level rose by 1.9 per cent.

It is important to note that these estimates of business investment are not comprehensive since they exclude several industry sectors – notably agriculture, forestry and fishing – as well as net purchases of second hand assets. Nonetheless, the recent results have positive implications for raising the productive capacity of the state economy going forward.

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