South Australian Data Wrap – 4 September

In today’s data wrap we review the key data releases from last week that provide insight into South Australia’s recent macroeconomic performance.

Construction activity continues to grow solidly
Activity in the South Australian construction sector rose solidly in the June quarter, extending the strong recovery that emerged in late 2016. Preliminary estimates released by the Australian Bureau of Statistics show the real value of construction work done in South Australia in trend terms rose by 5.5 per cent in the June quarter of 2017, to be 12 per cent higher compared to a year earlier. In comparison, construction work done nationally rose by 0.6 per cent in the June quarter, but remained 2.0 per cent below its level from a year earlier.

The recovery in construction activity for South Australia has been driven by engineering construction, which rose by 8.4 per cent in the June quarter to be up 19 per cent compared to a year earlier. A positive sign is that building activity has also rebounded, rising 3.2 per cent in the June quarter (up 6.1 per cent through the year). Seasonally adjusted data indicates that there was a very strong rise in non-residential building work done in the June quarter (up 23 per cent), while residential building also grew (5.8 per cent).

The recent relatively weaker trend in construction activity for Australia compared to South Australia is mainly a consequence of weakness in Western Australia. Construction activity in Western Australian has fallen sharply in response to the mining downturn. In contrast, construction activity in eastern states such as Victoria and New South Wales has been growing solidly.

Building approvals suggest building activity should remain solid in short term
In terms of the short term outlook for the building sector, latest ABS building approvals data suggests that building activity should remain at firm level over the short term. Trend data indicates that the value of total building jobs approved in South Australia rose by 1.6 per cent in July, while nationally total building approved rose by 1.3 per cent. The value of total building approved for both South Australia and Australia in July 2017 were at high levels relative to historical standards.

The lift in South Australian total building approved for July was brought by an increase for residential building (up 2.1 per cent), while non-residential building was also a little stronger (up 0.7 per cent). The rise in non-residential building approved follows 5 consecutive monthly falls, whereas the value of residential building approved has risen strongly over the past 10 months.

Private sector capital spending has improved, but remains subdued
Latest estimates of private new capital expenditure, which represent a partial indicator of business investment, allow one to tell a different story depending on which series one chooses to focus on. The trend series indicates that South Australian private sector capital expenditure in real terms rose by 4.4 per cent in the June quarter 2017, whereas the seasonally adjusted series implies that capital spending fell by 5.5 per cent. The discrepancy is a consequence of a spike in the seasonally adjusted estimate of capital spending for the March quarter, which has the effect of boosting the latest trend estimate (which is essentially a smoothed version of the seasonally adjusted series).

Regardless of whichever series one chooses to focus on, capital spending in South Australia has improved during the first half of 2017, helping to reverse a steady decline that occurred through 2015 and 2016. Original data indicates that the real value of capital spending for the first half of 2017 was 8.0 per cent higher than in the corresponding period a year earlier. In comparison, national capital spending was down 5.8 per cent between these periods.

While private sector capital spending has improved recently for South Australia, it remains below its past decade average level.

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