May 26, 2011 – Economists say that an unexpected weaker construction data illustrate a rise in construction activity during the March quarter. However, it is riddled with widely differing trends between sectors and asset classes, making a hike in the June rate highly doubtful.
According to the Australian Bureau of Statistics (ABS), the construction work in chain volume terms during the March quarter, seasonally adjusted, was valued at $42.327 billion, which is 0.7 per cent higher as compared with the December quarter which was at $42.041 billion.
As a breakdown, the private sector construction was up 2.5 per cent, with a rise of 3.5 per cent in construction by home builders of residential building and drop of 3.0 per cent in non-residential building, while construction by the public sector has dropped by 3.6 per cent.
A 1.5 per cent increase was the median market forecast in the quarter.
In the March quarter, a rise of 4.6 per cent occurred in the engineering construction while residential construction by home builder has seen a rise of 1.9 per cent and the non-residential construction, a drop of 10.2 per cent.
Helen Kevans, an economist in JP Morgan, commented that due to the non-residential component, the headline figure was a little bit weaker than anticipated.
According to Ms Kevans, the recent construction data may pull down the March quarter Gross Domestic Product (GDP) figures which is due to be out next week, June 1.
The outcome is the weaker than expected construction data and has contributed very little to economic growth in the quarter removing any real hope of a rise in the Gross Domestic Product (GDP) in the quarter.
The reduction in economic growth due to widespread flooding over summer is expected to show up in the building figures.
The 4.75 per cent cash rate of the Reserve Bank of Australia (RBA) is not expected to rise at the next board meeting on June 7 even though an expected contraction in March quarter growth occurred.
Ms Kevans said that they think that until August, the RBA will sit on the sidelines when it will have received the second quarter CPI (consumer price index) data in hand.
