The ABS’ latest estimates of engineering construction activity for the March quarter (Q1) of 2018, indicate there was more engineering construction work done in the non-mining states than the mining states for the first time since 2005. This is largely because of rising infrastructure spending in New South Wales and Victoria and the end of the mining investment boom in the mining states. Significant volumes of public infrastructure work continue to be contracted out to the private sector, with the private sector accounting for 71% of all engineering work being done for the public sector in Q1 2018. Work in the pipeline for transport infrastructure (roads, highways, bridges and rail) continues to rise, reflecting recent announcements by State Governments.
Job vacancy data released this week by the ABS suggest the unemployment rate may fall below 5.5% in the coming months. On an annual basis, job vacancies rose at its fastest rate since early 2011 (+21.4% p.a.) to a record high of 234,200 vacancies in May 2018 (trend). However, the change in vacancies reported by the ABS are significantly higher than other measures of vacancies, which suggest much slower, albeit still positive, employment growth.
Last week, the ABS estimated that 51,992 Australian businesses were involved in exporting goods in 2016-17, an increase of 700 businesses or 1.4% from the previous year. This represents just 2.3% of all active businesses in Australia (2.2 million in June 2017) or 6.0% of all active businesses with employees (868,000 in June 2017).
Non-mining states drive engineering activity in Q1 2018
The ABS estimates that the real value of engineering construction work done in Q1 of 2017 increased 2.8% q/q to $23.6 billion (seasonally adjusted, inflation adjusted). The cyclical decline in engineering construction after the mining investment boom, which was acting as a major drag on growth, appears to be over. The drivers of engineering construction activity over the past decade have changed dramatically. For the first time since 2005, the real value of engineering construction was greater in the non-mining states than the mining states, largely because of rising infrastructure spending in New South Wales and Victoria and the end of the mining investment boom in the mining states (Queensland, Western Australia and Northern Territory).
Engineering construction in the mining states bottomed out at $11.0bn in the December quarter of 2016 and has risen slightly to $11.1bn in the March quarter of 2018 (there was a one-off spike in the September quarter of 2017 because of the timing of an LNG platform installation in Western Australia). This is less than half the record level reached in September 2013 of $25.6bn. Many mining projects have since completed the construction phase and have shifted to the production and export phase.
The majority of engineering construction work done in Q1 2018 was for the private sector, which increased by 0.6% q/q to $14.2bn (+10.4% p.a.). Work done for the public sector also added to growth in the March quarter, with an increase of 6.3% q/q to $9.5bn (+19.2% p.a.). Significant volumes of public infrastructure work are being contracted out to the private sector; engineering work done by the private sector for the public sector rose by 27.6% p.a. to $6.7bn in Q1 of 2018 (real inflation-adjusted volumes, seasonally adjusted) and accounted for 71% of all engineering work being done for the public sector (Chart 2). This is particularly evident in Victoria and New South Wales where work done by the private sector for the public sector accounted for 89% and 74% of all engineering work being done for the public sector, respectively (nominal, unadjusted data).
Reflecting work starting on significant road and rail projects, the nominal value of public-sector infrastructure work on roads, bridges and rail has been rising steadily for the last two years (see Chart 3). Telecommunications (which includes the work done for the roll-out of the NBN) has also seen a sizeable increase in engineering work for the public sector. As a percentage of GDP, engineering work for the public sector on roads and rail is nearing the levels seen during the GFC, where government stimulus significantly increased the amount of infrastructure spending as a proportion of GDP.
Looking ahead, the pipeline of future work grew in Q1, with the value of work yet to be commenced in the March quarter rising 20.0% q/q to $59.2 billion (nominal, unadjusted data). The private sector is expected to conduct $54.8bn of this engineering construction, with $24.2bn being done for the public sector. There is a declining pipeline of work for the private sector in mining related projects (including LNG projects), but also less port infrastructure investment. In contrast, future work for transport infrastructure (roads, highways and bridges), railways and utilities is increasing, reflecting significant transport investment announcements by State Governments (Chart 4).
Consistent with the changing geographic destination of engineering construction activity, construction employment has risen particularly rapidly in NSW and Victoria over the past year (Chart 5). Construction is estimated to be around its highest share of employment in a century and now employs 1.2 million people or 9.4% of the workforce.
ABS Job Vacancies suggest unemployment may fall below 5.5%
Job vacancy data released by the ABS this week indicate job vacancies rose 4.6% q/q to a record high of 234,200 in May 2018 (trend). This comprised of 214,000 private sector vacancies, which have increased by 23.0% p.a., and 20,100 public sector vacancies, which have grown by 6.7% p.a. Total job vacancies grew at the fastest pace since early 2011 at 21.4% p.a.
Victoria accounted for around half of the increase in job vacancies over the past year (unadjusted data). It appears labour market conditions are improving in the mining states where job vacancies are up 20.1% p.a. in Queensland, 26.3% p.a. in Western Australia and 24.6% p.a. in the Northern Territory.
ABS job vacancies as a proportion of the total labour force are now at their highest level on record at 1.8%, indicating that there are more job vacancies as a proportion of people who are working or looking for work. This measure tends to lead movements in the unemployment rate by 3-9 months and suggests the unemployment rate may fall below 5.5% in the coming months (see chart 6).
However, other leading indicators of employment growth suggest slower employment growth in coming months. Last week, the Department of Jobs and Small Business Internet Vacancy Index (IVI) fell for the third month in a row, with online job vacancies falling by 0.9% m/m to 180,700 in May (trend). The change in vacancies reported by the ABS - both over the quarter and past year
are significantly higher than other measures of vacancies such as the Department of Jobs and Small Business IVI, ANZ job ads and Seek job ads (see Table 1).
