Friday, March 2, 2012

Building Approvals Review

Building Approvals by Value jumped dramatically in January 2012. The jump is in the 99th percentile of monthly growth since 1974.

There are also some concerns about the YOY and MOM jump in value in Victoria and SA.

NSW Vic Qld SA Total
MOM -9.1% 75.3% -6.2% 1043.8% 51.0%
YOY -3.2% 85.6% -0.7% 774.2% 61.5%

MOM -27.5% -23.2% -34.2% -64.9%
YOY -15.1% -46.1% 76.8% -48.2%


The main point of this article is to look at the trends and whether we are looking at an employment recession, particulalry in Victoria and NSW.

The chart below is deflated at 7.5% . This is 3.5% for inflation, 2.0% for population growth and 2.0% for increases in real wealth (which leads to bigger more expensive buildings and more space per person in a building. The result of choosing these deflators is that the use of a 7.5% total deflator gives a virtually horizontal linear trend, putting slowdowns in sharp relief.

From this chart of deflated building approvals, the current 12 month moving average is about the level of the 2001 bottom. 2001/2/3 was a period of very slow growth in Real GDP.

Jun-2001 0.6%
Sep-2001 1.6%
Dec-2001 0.8%
Mar-2002 1.4%
Jun-2002 1.1%
Sep-2002 0.5%
Dec-2002 1.0%
Mar-2003 0.3%
Jun-2003 1.2%

While GDP might be supported by the resource boom, there is a real chance that employment in the most populous states will not as older more experienced workers with construction experience will be less mobile, while younger, more mobile workers will have less experience and it might not be regarded as sufficient for more complex resource project construction.

The possible solution to lower employment in Sydney & Melbourne will be fly in, fly out (FIFO)but with lower wages than might otherwise be the case as construction unemployment bites harder. FIFO will bring its own problems for families and resource companies but would ameliorate the labour and employment problems that will otherwise exist.

Now is the time for construction workers in Sydney and Melbourne to be increasing skills relevant to resource construction and operations, including vehicle and equipment licences, specialised welding skills and the like.

Could the Reserve Bank be keeping rates high to encourage savings to fund the resources boom and to cause concern for developers to allow some unemlpoyment in construction to assist in providing labour for the resources boom, or is it just a happy congruence of events?

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