Early signs of trouble for Aussie Economy
This time last week we wrote an article talking to Credit Suisse’s warning that Australia has trouble ahead as the infrastructure spending pipeline is not there to prop up the economy.
Money Morning ran an article late last week presenting a chart of construction work done in the sectors of engineering (mines, infrastructure, etc), residential and non residential construction. When the mining boom that saw us relatively (to the rest to the world at least) cruise through the GFC ended the Government knew they needed spur on infrastructure and residential construction to take on some of the burden. It worked. That is abundantly clear in the chart below which has been updated for the 2018 September quarter.
That stimulus to the housing sector has seen incredible price growth and a pull forward of organic residential construction. But like any ‘pull forward’ there is inevitably a hole created behind it as reality catches up. Setting aside the one off increase in engineering spending in the September 2017 quarter, you can clearly see the trend is on the decline. That fall in engineering construction takes it to $23b of which $9.8b is public sector works (down 0.1% since last quarter) and private sector work of $13.2b, down a very concerning 7.5% on last quarter and due largely to a downturn in mining investment. Over the whole year that is even worse with private sector spending down a whopping 49.3% and public up 8.5%. That the 8.5% lift turned to a 0.1% decline this last quarter speaks to that article of ours last week. The pull forward appears over.
But what really has some concerned is the rollover of residential construction, down 2.4% for the quarter.
In total, construction values fell by 2.8% to $53.1b whilst market analysts were looking for a 0.9% increase.
That 2.4% drop in resi comes in lockstep with the latest house price data showing Australia just saw its worst monthly price drop since the GFC at 0.9% for November.
As you can see from the dotted line of the average for the 5 capitals we are looking at an annualised pace of 10% losses for the year.
With such pricing and demand metrics against the oversupply of stock, you can clearly see where residential construction is heading from here.
For years now our various layers of governments have been fuelling the residential market to take up the slack of falls in mining investment. The limit of stealing from the future to support the excesses of the present appears to be nigh. In the meantime we have let manufacturing die and created so much red tape stifling startups and slowing new investment that we are leaving ourselves few options.