This article is from the Australian Property Journal archive
THE construction and property sectors failed to tag along the continued rebound in business confidence, with low profitability weighing down the building industry.
According to the NAB’s latest survey, August saw both business confidence and conditions edge higher with confidence rising by 3 points to +10, continuing to rebound from the June low. At the same time, business conditions rose 1 point to +20 with trading conditions lifting, while employment and profitability are still strong. Conditions remain strong across the states and in most industries.
Although sectors such as retail (up 12 points) continue to be buoyed by strong consumer spending despite rising interest rates, the construction sector fell by 8 points, reversing the rally seen in July, along with business and property.
NAB chief economist Alan Oster said the construction sector saw both conditions and confidence fall.
“Low profitability remains a challenge in the construction sector and the brief rally in the July survey now looks like an outlier.
“Reinforcing the strong overall conditions, capacity utilisation remained at a very high level at 86.3%, and the near-term outlook is also positive with forward orders rising. Measures of cost growth eased slightly in the month after reaching record rates over recent surveys but remain very high by historical standards.
“Labour costs grew 3.5% in quarterly terms while purchase costs grew 4.4%. With demand strong, firms continue to pass costs through to consumers with overall product prices growing 2.4% and retail prices growing at an unchanged 3.3%,” Oster added.
A recent survey shows the construction industry is lagging behind other industries when it comes to productivity and at the same time is facing a critical shortage of 105,000 workers.
The construction industry contributes 8% of GDP but its productivity growth lags other major industries by 25%.
According to the Australian Constructors Association, the opportunity of closing this gap is enormous.
Just halving this productivity gap would result in savings of $15 billion annually and, importantly, ensure the industry is positioned to deliver the record pipeline of projects.
Meanwhile NAB’s survey shows with inflation running at more than 6% and interest rates rising rapidly, household budgets are under increasing pressure. However, there is little evidence these pressures are impacting consumer spending behaviour.
“Official data for retail sales in July confirmed spending remained robust, as suggested by the previous survey, and today’s release shows little sign that August was much different.
“Recreation & personal services price growth was also unchanged at a very strong 2%. This suggests firms are continuing to pass through price increases to consumers, setting up another strong inflation result for Q3,” Oster said.
“We continue to expect that inflation and rising interest rates will eventually begin to weigh on household budgets more materially, slowing the pace of consumption growth and, in turn, helping to ease inflationary pressure. So far, however, it appears this dynamic is yet to take hold.” Oster concluded.
