Building sector more resilient than expected

The slump in the construction industry continued in March but economists were surprised by how resilient activity remained in the first three months of the year.

Statistics New Zealand figures showed that the seasonally adjusted volume of all building work put in place fell 0.7% in the period, the fifth consecutive quarterly fall.

ASB economist Jane Turner said her expectations had been for a large 7% decline.

"The main source of the surprise was in the volume of residential construction falling 0.4% in the quarter, compared to our expectations of a 10% fall."

For the March year, the value of residential building work put in place was $6.85 billion, down 20.6% from the previous March year. Of the total, new dwellings fell $1.73 billion, or 24%.

Non-residential construction activity fell 1% compared to the ASB forecast of a 4% fall.

Building consents plummeted in the second half of last year and continued to steadily fall over the early months of this year, she said.

"Allowing for some lag between building consents being issued and construction activity starting, we had expected to see a 10% decline in residential building activity, given there was a 17% decline in the number of dwelling consents issued over the preceding quarter."

With construction demand drying up so dramatically, it was a surprise that the level of activity managed to remain so robust, Ms Turner said.

A decline in demand was inevitable and a larger drop was expected to show up in the second quarter of the year.

Non-residential construction had held up well throughout the recession, possibly aided by strength in public investment.

Statistics NZ noted that construction activity was boosted by work on stadiums and justice system buildings. All other categories, excluding education, recorded a decrease.

The unadjusted value of non-residential building work put in place was $5.29 billion for the year ended March, up $263 million, or 5.2%.

Ms Turner said yesterday's result had implications for near-term GDP forecasts, as the work put in place survey was a key input into production GDP estimates.

With construction registering only a minor fall, GDP was expected to contract by 0.7%, compared to a previous forecast of 0.9%, she said.

"As we view the surprise as merely timing, we will lower our estimate for second quarter GDP accordingly. The construction survey has limited implications as it typically follows developments in consent issuance.

"Residential consent issuance has recently bottomed out, which implies that construction activity will also trough in the latter part of this year."


Key building statistics for March quarter.-

• Total volume of work put in place: -0.7% (-7% expected)
• Residential: -0.4% (-10% expected)
• Non-residential: -1% (-4% expected)

 

Add a Comment