The outlook for Australia's construction sector is starting to show signs of improvement

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The outlook for Australia’s construction industry is looking far better than it did just a few months ago.

According to data released by Australia’s Bureau of Statistics (ABS) today, total building approvals rose by 0.4% to 18,514 in August in seasonally adjusted terms, continuing the modest rebound seen in recent months.

That represents a decline of 15.5% from a year earlier.

In trend terms, eliminating the impact of month-to-month movements in the volatile apartment sector, the ABS said that approvals rose by 1.1% to 18,312, leaving them down 6.5% from August 2016.

As a lead indicator on the outlook for activity across Australia’s construction sector, this suggests that the expected decline in residential building activity in the period ahead will be modest in nature.

Indeed, as seen in the chart below, approvals for both houses and dwellings ex-houses are now trending higher on a monthly basis.

“It looks increasingly likely that the downturn in approvals is largely over,” said Daniel Gradwell, senior economist at ANZ. “Leading indicators such as strong housing finance results support this view, and we continue to believe that dwelling investment will remain elevated into 2018.”

Kristina Clifton, economist at the Commonwealth Bank, agrees, noting that strong population growth is another factor that will help to underpin housing demand in the period ahead.

“Strong and rising population growth means the demand for new housing remains firm,” she says.

“And despite the record number of new homes built in recent years there is no sign of oversupply overall.

“In fact, the latest data on vacancy rates showed that they inched lower again in the Eastern States.”

By category, the ABS said that approvals for private sector houses fell by 0.6% to 9,797 in seasonally adjusted terms, leaving the increase from a year earlier at 3.1%.

Helping to explain the modest rise in the headline approvals figure, private sector approvals excluding houses — namely units — rose by 4.8% to 8,496 over the same period.

Over the year, and despite that solid increase, approvals in the category were still down 29.2%.

“Dwelling approvals have shown signs of strength in recent months, although are still below the record high in 2016,” said Bill Becker, assistant director of construction statistics at the ABS.

At 18,514 in seasonally adjusted terms, total approvals sit well below the recent cyclical peak of 21,897 reported in August 2016.

By dollar spend, the ABS said the value of work approved fell by 5% in seasonally adjusted terms, building on the modest decline seen in July.

“The value of residential building rose 2.2% following a fall of 1.5% in the previous month,” the ABS said. “The value of non-residential building fell 15.7% following a rise of 1.1% in the previous month.”

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