Victorian construction provide surprise, possibly upgrades for Sep quarter GDP

Summary: Construction spending slips 0.3% in September quarter, fall smaller than expected; September quarter GDP fall could be less than previously expected; residential sector flat, non-residential building lower, engineering up; Victoria source of surprise, up 5.8%.

According to the latest construction figures published by the ABS, total construction in the September quarter declined by 0.3%. The fall was not as great as the 3.0% contraction which had been expected but it was in contrast to the June quarter’s 2.2% increase after it was revised up from 0.8%. On an annual basis, the growth rate improved from June’s revised figure of 1.4% to 3.5%.

“This adds to the evidence that the Q3 dip in GDP could be smaller than our earlier estimate of -3.3%,” said ANZ senior economist Catherine Birch.

Commonwealth Government bond yields moved lower on the day, ignoring upwards movements in US Treasury yields overnight. By the end of the day, the 3-year yield had shed 3bps to 1.17%, the 10-year yield had slipped 1bp to 1.88% and the 20-year finished 3bps lower at 2.37%.

In the cash futures market, expectations of any material change in the actual cash rate, currently at 0.04%, remained fairly soft. At the end of the day, contract prices implied the cash rate would not exceed the RBA’s 0.10% target rate until May 2022 but then rise to 0.98% by December 2022.

Residential building construction expenditures remained unchanged after rounding, the same result as in the previous quarter after revisions. On an annual basis, expenditure in this segment was 7.0% higher than the September 2020 quarter, slightly lower the June quarter’s revised figure of 7.2%.

Non-residential building spending decreased by 2.2%, in contrast with the previous quarter’s revised increase of +2.0%. On an annual basis, expenditures were 2.4% lower than the September quarter of 2019. The June quarter’s comparable figure was -3.7% after revisions.

Engineering construction increased by 0.4% in the September quarter, down from to the previous quarter’s 4.1% after revisions. On an annual basis, spending in this segment was 4.0% higher than the September 2020 quarter, up from the June quarter’s comparable figure of -0.2% after revisions.

“Victoria is once again the source of surprise,” said Westpac senior economist Andrew Hanlan. He noted construction work in Victoria had increased by 5.8% while in other states jurisdictions construction had increased by 1.1%.

Quarterly construction data compiled and released by the ABS are not considered to be of a “primary” nature in the same way as unemployment (Labour Force) and inflation (CPI) figures. However, the figures are viewed by economists and analysts with interest as they directly feed into quarterly GDP figures.

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