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Total construction work done declined by 0.7 per cent in seasonally adjusted terms to $46.4 billion over the first quarter of the calendar year to be 7.2 per cent lower over the year to March 2017.
After weaker trade and retail figures, all of the signs appear to be pointing to a weak result for GDP growth in the first quarter.
First, here's the good news: having peaked all the way back in 2012, engineering construction activity is now rising again.
There were still moderate ongoing declines in Western Australia and the Northern Territory as resources construction activity continues to wind down, but the rates of these declines is now tapering off.
And indeed, at the national level engineering construction activity is rising again, partly driven by infrastructure projects in the three most populous states.
Dodgy weather...or peak resi?
Residential building work done dropped by 4.7 per cent in the quarter, which was the worst quarterly result for the sector since the introduction of the Goods and Sales Tax (GST) more than a decade and a half ago.
Building activity slowed across new house building, apartments, and major renovations, suggesting that at least part of the reason for the decline was Cyclone Debbie towards the end of the quarter, while Sydney also had some shocking weather during the period.
And looking at the building work done figures by state confirms as much, with a very sharp 10 per cent quarterly drop in Queensland, and a somewhat lesser 4 per cent decline in New South Wales.
In Victoria building activity powered to a new record high in chain volume measures terms, with the industry going like the clappers in Melbourne and operating at close to full capacity.
New detached house construction has been broadly flat since the end of 2014, with the growth in residential construction since that time driven by record activity levels in the apartments sector.
Here too there was a sharp weather-related 22 per cent fall in Queensland, plus a relatively small decline in New South Wales.
But there was also a slowdown in evidence in Western Australia, South Australia, the Northern Territory, and Canberra.
On this evidence, then, it's possible that the peak for apartment construction activity might have passed, although there is of course still a huge pipeline of work to be completed.
Firstly, growth in the economy in the first quarter is going to be weak, and perhaps very weak.
On the positive side there is light at the end of the tunnel for the resources states, as engineering construction activity finally looks to be bottoming out, after years of contraction.
Strip out the impact of Cyclone Debbie and heavy rain in Sydney and the apparently sharp drop in residential construction in the first quarter of the year may prove to be less than dramatic.
However, it's hard to escape the conclusion that building activity in the residential sector is about to fade away as the record pipeline of apartments is delivered to the market.
It might reasonably be expected that dwelling starts fall by about a quarter over the next couple of years.
Given the huge level of employment in the construction industry, this could prove to be a very significant drag on the economy going forward.
Stamp duty and transfers paid in New South Wales hit $9.63 billion over the year to April 2017.
This will be another huge boost to the New South Wales Budget, which ended the 2016 financial year in surplus, partly thanks to a one-off bonus from the Ausgrid transaction.
Later this morning the Australian Bureau of Statistics (ABS) will releases its March quarter figures for Construction Work Done.
This may be a key data series in determining whether interest rates yet have further to fall.
Total construction activity has declined over the past three years as the resources boom has wound down, yet the industry still employees more than 1.1 million people, about three quarters of whom are accounted for by the residential property sector.
Construction work done fell by 7.8 per cent last year to $46.3 billion in the December quarter - although the rate of decline slowed significantly towards the end of the year - and this was despite another solid 5.7 per cent lift in residential construction in 2016.
There was a bit of dodgy weather around towards the end of the March quarter, so a further decline wouldn't be a surprise, although public works should now at least be contributing a little bit of growth.
Credit Suisse put out a note last week suggesting that Australia's output gap may be consistent with several further interest rate cuts, citing upwardly-biased labour market figures which understate the likely level of slack in the labour market.
The Bank for International Settlements (BIS) provides a neat data series measuring residential property prices across various advanced countries.
Comparing house prices in different jurisdictions is arguably of limited use, but it's nevertheless an interesting exercise to see how markets in different countries have performed over time.
Indexing to a base of 100 in the year 2010 and looking at a selection of countries shows how prices in Hong doubled before a recent correction.
New Zealand has also seen a thunderous 60 per cent increase in nominal prices, while Canada is not too far behind at 42 per cent.
The increase over the corresponding seven years in Australia was lower at 31 per cent, reflecting that while some markets have seen very strong growth - mainly Sydney - others have essentially been treading water.
Residential prices in Ireland have now recovered to where they were in 2010, but remain well below their pre-financial crisis peaks.
The BIS also provides indexed prices in real terms, adjusted for inflation.
Here, New Zealand looks like an outlier recording huge 47 per cent growth in real terms, comfortably outpacing Canada at 29 per cent, and Australia at less than 15 per cent.
Of the countries selected above, only Ireland has not seen prices increase in real terms since 2010, reflective of monetary policy stances globally.
Western Australia, which basically comprises the western third of the country, has been through a rough trot since the peak of the resources construction boom.
And then in April the seasonally adjusted unemployment rate suddenly fell from 6.5 per cent to 5.9 per cent.
Does this signal that the tentative beginning of a recovery? Well, perhaps.
Certainly the decline in engineering construction is now considerably closer to the end than the beginning, while the recent bounce in commodity prices might help to spur along some new drilling as iron ore reserve are depleted.
The trend unemployment rate has recovered more gradually from 6.5 per cent in October 2016 to 6.1 per cent in April.
This may in part have been helped along by net interstate migration to the eastern states.
In fact, the labour force figures for WA have improved on a number of metrics since the third quarter of last year.
For example, the employment to population ratio has tentatively begun to trend up again.
Victoria has overwhelmingly created most of the new jobs over the past year on a net basis, but WA has moved back into positive territory having really plumbed the depths last year.
Full-time employment had crashed as low as 890,800 in September 2016 - down from the record 2014 peak of 966,900 - but has since bounced back somewhat, up by 44,200 to 935,000.
Monthly hours worked have also increased year-on-year, up by 1.7 per cent in trend terms.
After such a punishing run, you wouldn't want to jinx it by calling the bottom, but there are at least a few signs of green shoots here for WA.
On an obliquely related note, from March next year residents of Perth will be able to fly non-stop to London on the Qantas Dreamliner service.
Domain reported a preliminary auction clearance rate of 76.9 per cent for Sydney on Saturday, recording 512 sales.
The median auction price was back up to its highest level in six weeks at $1,300,000, and was quite considerably higher than the corresponding weekend last year.
The median auction price reported for houses increased from $1,407,500 last year to $1,511,000, while the median price of units sold under the hammer increased modestly to $875,000 from $850,000 last year.
CoreLogic reported a clearance rate for the week of 80.7 per cent in Sydney from well over 1,000 auctions, which was its highest reported result for Sydney since April 9.
The top sale of the weekend was seen in Northbridge, where a grand 5-bedroom waterfront home on 1,891 square metres with panoramic Sydney harbour views and water access fetched $9.3 million.
A strong result, no doubt, but not a patch on the street record set in September last year.
Respective auction clearance rates were also very strong in Melbourne.
More lenders are set to report higher mortgage rates this week for interest-only loans.
Despite the unambiguously strong auction results, slowly but surely regulatory and Budget measures respectively are set to strangle city-wide growth in these two markets, as I looked at in a little more detail here and here.
It was announced in the 2017 Budget speech that the regulator APRA will explicitly be allowed to differentiate loan controls by location.
This is another move signalling that politicians and regulators don't trust banks to lend responsibly, while simultaneously inferring that they know better than the market what 'should' be happening in terms of property markets and lending activity (which may be a positive thing or a very worrying development depending on your outlook!).
Practically speaking this means that APRA might look to restrict the flow of credit into 'hot' housing markets - essentially Sydney - while presumably steering clear of intervention in markets where prices and rents are in a multi-year freefall (such as Darwin, Gladstone, or indeed any number of of Australia's resources regions).
This all sounds jolly good on paper, until you think about all of the potential ramifications of regulatory intervention. There isn't the space here to go into detail on this point, but it's a concern!
Lending finance rebounds
The March 2017 Lending Finance figures, which strangely never seem to get any media coverage, saw total lending jump tidily from $67.6 billion to $72.9 billion in seasonally adjusted terms.
Lending to homebuyers was relatively steady in the lead-up to APRA's latest round of macroprudential curbs, while nationally there was a moderate increase in lending to property investors (classified below under commercial finance).
It's generally reported that lending for real estate is unproductive and risky, while lending to business is productive and a good thing. This may be true to an extent, though there are many sub-trends to take into account.
Overall commercial lending saw a neat increase in the month of March to be solidly higher year-on-year, even if the recent trend series looks a little flat lately.
Renovations rose to a 6.5 year high in March 2017, as Aussies apparently shunned stamp duties and trading up for staying put and renovating instead, though looking at the numbers in their historical context the 'renovation boom' story seems a bit less enticing.
Splitting out commercial finance fixed loans by industry shows how lending into the mining sector has all but evaporated, declining by a further 46 per cent over the year to March. Commercial lending to the mining industry has fallen to about a quarter of the level seen at the peak as the resources construction cliff now approaches its nadir.
Despite this massive contraction, annual lending for construction continues to expand at a sprightly double digit pace, a trend which belies Australia's over-reliance on the residential building sector for employment and growth.
Lending for investment in New South Wales surged to a thumping $6.2 billion in March - 39 per cent higher than for the same month last year - signalling a huge rebound since APRA's first round of macroprudential restrictions.
There was also something of an increase in investor lending in Victoria which will warrant careful observation.
The massive divergence in fortunes across the states in the prevailing low interest rate environment is ultimately what led to APRA's new powers to target lending practices in specific neighbourhoods.
While Sydney property has been burning up, property investor loan volumes in the Northern Territory have collapsed to their lowest level in 11 years as prices and rents in Darwin continue to fall.
Overall, it was a stronger month for lending finance in aggregate, with a sizeable lift in commercial finance.
After a blazing result last month the Labour Force figures for April 2017 again blasted expectations with another increase in employment of 37,400.
The Reserve Bank of Australia (RBA) noted in its Minutes this week that the distinction between full time and part time employment might be of less importance than in the past, which may be just as well since this month's result was exclusively driven by part time employment.
Total employment has surged by 97,400 in only two months to a fresh high of 12,099,300 according to the seasonally adjusted series, taking year-to-date employment gains to more than 106,000.
Annual employment growth has in turn jumped from just 0.9 per cent to 1.6 per cent in the past two months, though the trend line suggests a more moderate rate of growth at 1.3 per cent (which is about in line with national population growth).
Tellingly, perhaps, the number of monthly hours worked did not increase, notching only 0.7 per cent growth over the last year in trend terms.
With so much part time work abounding and little meaningful increase in hours worked, there's no doubt that once you move past the rousing headline numbers, this was only a moderately upbeat result. Unemployment down
The seasonally adjusted unemployment rate dropped from 5.86 per cent last month to 5.71 per cent, which in rounded terms looked like a pretty tidy move from 5.9 to 5.7 per cent.
The trend unemployment rate has been stuck in the 5.7 to 5.8 per cent range now since the end of 2015.
I've been having some fun in recent months tracking the respective unemployment rates of a few developed countries.
The US has seen its unemployment rate fall to just 4.4 per cent, while it was reported yesterday by Britain's Office for National Statistics (ONS) that the UK unemployment rate has fallen to a 42-year low of just 4.6 per cent.
Yet British wages are not growing in real terms, perhaps in part reflecting a trend being seen globally.
Around the traps
In Western Australia the seasonally adjusted unemployment rate fell from 6.5 per cent to 5.9 per cent in the month of April for a welcome improvement, if partly driven by migration interstate.
In New South Wales, meanwhile, the unemployment rate dropped from 5 per cent to just 4.7 per cent, which is arguably getting close to full employment, although here too there are few signs of wage price pressures just yet.
In South Australia on the other hand the rate of unemployment jumped from 7 per cent to 7.3 per cent.
The trend figures plotted below show the more consistent smoothed results.
Victoria has created by far and away the greatest number of jobs over the past year at +115,600, accounting for record high population growth in the state, particularly in Melbourne.
Wages growth came in once again at 0.5 per cent for the quarter, leading to annual growth of 1.9 per cent, which is as low as we have seen over nearly two decades of readily available figures.
Since June 2014, wages growth has recorded increases of between 0.4 per cent and 0.6 per cent for 12 consecutive quarters.
The Budget generously assumed that wages growth will rebound from here all the way up to 3.75 per cent over the years to come.
Hmm, well let's hope so...and good luck with that!
Wages growth is still tracking ahead of underlying inflation - and so wages are growing in real terms - but only just.
Overlaying the growth in public sector wages (2.4 per cent over the year to March 2017) we can see just how anaemic wages growth has been in the private sector (a record annualised low of just 1.8 per cent) over the last few years.
Looking around the traps Tasmania (2.3 per cent) has rare bragging rights to the strongest wages growth, while Western Australia (1.2 per cent) has the weakest.
The other states and territories saw wages growth grouping between 1.8 and 2.2 per cent.
The wage price index has not increased over the past six months from the September 2016 quarter in Western Australia.
On the one hand this is lamentable, but on the other hand it's likely to be a necessary adjustment post-mining boom.
In fact wages rose so hard and fast in Western Australia through the mining boom that the Golden state has been by far the strongest performer over the course of the data series.
Mining is now the sector with the weakest year-on-year wages growth at just 1.2 per cent, while healthcare and social assistance, education and training, and public administration were jointly top of the tree with 2.3 per cent growth.
Financial services wages were up by 2.2 per cent.
Wages growth continues to kick along the bottom, probably at around the lowest levels in half a century in nominal terms.
Ordinarily this would have economists screaming for interest rate cuts, but nobody seems to care that much about the Reserve Bank missing its inflation target any more.
With record low wages growth can certainly forget about any return to a Budget surplus until wages growth picks up.
Figures released today showed a resurgence in Sydney investor loans in March, suggesting that buyers are sceptical of a looming oversupply.
Following the Federal Budget APRA has new powers allowing the regulator to target real estate hotspots, and the $6.2 billion of investor loans written for property investors in New South Wales in the month confirmed the reason why they may be needed.
I'll look at the investor loans figures in a separate post, but first a bit more colour on Sydney vacancy rates.
Rental vacancy rates inched higher in April with most capital cities recording an increase over the month, but remain relatively low even at this stage in the construction cycle.
The national vacancy rate edged up from 2.3 per cent to 2.4 per cent in the month, but SQM Research cut straight to the point in its newsletter:
"Remember, this time last year there was a real fear of a unit oversupply. Forget that now for Melbourne and Sydney. There is no oversupply.
And, depending upon how first home buyers respond to the Budget, there could be significant under-supply later in 2018-2019 which may cause rents to skyrocket.
After all, rents in Melbourne are already well above expectations this year."
Plotted below are the vacancy rate numbers by capital city on a 6mMA basis.
As you can see, Hobart and now Canberra have extremely tight rental markets, leading to strong rental price growth in both of these capital city markets.
Dwelling owners in Canberra are about to be hit with big rates and land tax hikes from July this year, with more to come in July next year.
Despite there having been a high volume of apartments under construction in the nation's capital, median asking rents have already surged by 9.3 per cent for houses and 6 per cent for units over the past year, as being a landlord in the nation's capital becomes less attractive, at least from a cashflow perspective.
On the other hand asking rents have continued their multi-year decline in Darwin and Perth.
Big cities absorbing stock
Annual growth in asking rents has increased solidly in Sydney, and have even picked up the pace in Melbourne, both units (4.7 per cent) and for houses (6.4 per cent). Reported SQM:
"We are nowhere near to seeing any signs of an oversupply of units in either inner-city unit market."
A prime reason for these two cities having "still tight" markets has in part been thunderous population growth, particularly in Melbourne where the trend for vacancy rates sits back at its lowest level in at about half a decade.
This is a bullish call by SQM, with there still being around 217,000 dwellings under construction at the beginning of the calendar year.
SQM’s calculations of vacancies are based upon online rental listings that have been advertised for three weeks or more compared to the total number of established rental properties, explaining the relatively low absolute readings.
This produces consistent and meaningful results, but there could arguably be a risk of understatement at the peak of the construction cycle if newly constructed blocks of apartments only see a sample of units advertised online.
Over the next two years Melbourne and Sydney will likely see the completion of another 100,000 units each, while Brisbane will struggle to absorb the estimated 45,000 apartments expected to complete over the same time horizon.
Nevertheless, the statistics at this stage for Sydney and Melbourne show relatively well balanced rental markets, with some units owned by foreign buyers also likely to be held empty.
New motor vehicle sales bounced nicely to 97,136 in April thanks to increases in New South Wales and Victoria, but are now tracking some way below the peak of just over 100,000 in the month of September last year.
1.17 million new units were shifted over the year to April 2017, one for about every 16th adult in Australia.
Amazingly the number of Sports Utility Vehicles (SUVs) sold in April approached the number of passenger vehicles, following an astronomical rise. It appears to be only a matter of time before SUVs are the number one product, which is remarkable.
At the state level, sales in Queensland may have been knocked back a little by severe weather, and only Victoria remains in a convincing uptrend, being the state with the fastest population growth rate.
Finally production volumes continue to drop off a cliff as product lines are discontinued in Australia and the car manufacturing industry is shuttered.
Automotive production volumes fell to just 6,937 in April, some 50 per cent lower than a year ago.
New vehicle sales remain soft in the resources states. However, the Reserve Bank noted in its Board Meeting released today that: "Recent data had provided further signs that the downswings in the Western Australian and Queensland economies were coming to an end."
Almost everything about the Minutes suggested to me that the official cash rate could be on hold for a long time.