Australia's construction outlook 'remains fairly weak'

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  • Building approvals fell by 5.2% in July in seasonally adjusted terms, data from the ABS shows.
  • There were sharper falls in Victoria and NSW, partly reflecting monthly volatility from the one-off effect of large apartment developments.
  • Capital Economics said the outlook for construction investment “remains fairly weak”.

New building approvals slumped in July, mostly offsetting a sharp rise in June.

Data from the ABS showed total approvals fell by 5.2% to 18,185 last month in seasonally adjusted terms, missing forecasts of a 2% fall. The monthly decrease led to an annual decline of 5.6%.

Private sector housing approvals fell by 3% to 9,770 in seasonally adjusted terms.

There were sharper falls in non-housing dwelling approvals (apartments) which fell by 6.6% to 8,200.

Building approvals data is generally subject to monthly volatiulity, due to one-off effects from the approval of large apartment developments in particular months.

However, Capital Economics chief economist Paul Dales said the latest data “implies that the outlook for dwellings investment remains fairly weak”.

Westpac economist Matthew Hassan said the latest data is reflective of declining activity, following the residential construction boom in recent years.

“Overall the July report is a weak one for new building, with the detail starting to move more in line with our expectation of a renewed decline in this segment,” Hassan said.

While new building approvals now appear to be slowing, recent data from the ABS showed there were still a record 155,275 units under construction as at the end of March, mostly in NSW and Victoria.

Hassan noted that taking out the monthly volatility for units, new approvals were down just 0.3% for the quarter.

“While the July fall is consistent with our prior of a ‘second leg’ lower in high rise activity, it will take a few more months to have a convincing signal from approvals,” he said.

In trend terms, apartment approvals for the greater Sydney area slumped by 35% from the same time last year to 2,766.

However, that was due to the effect of a large spike in July 2017 which had 4,242 approvals.

In trend terms by state by both detach and non-detached dwellings, the largest falls were in Victoria (-4.3%) and NSW (-2.4%). That was offset by gains of 12.2% in the ACT and 5.1% in Tasmania.

Today’s falls follow a solid increase in June, when total approvals rebounded by 6.4% to 19,133 in seasonally adjusted terms.

While new building approvals now appear to be slowing, recent data from the ABS showed there were still a record 155,275 units under construction as at the end of March, mostly in NSW and Victoria.

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