Building work, manufacturing slump in September quarter

Photo / Northern Advocate

The value of new home building stalled in the September quarter amid a slowdown in the economic recovery.

The value of residential building work put in place dropped 5.3 per cent to $1.65 billion in the three months ended Septempber 30, says Statistics NZ, leading declines in the construction sector.

The value of all buildings fell 3.2 per cent to $1.98 billion, with commercial construction falling 0.7 per cent to $924 million in the quarter.

The pause comes after nine months of expansion for residential development, and six months in the commercial sector. The period includes the immediate fall-out from the September earthquake in Canterbury, which caused an estimated $4 billion worth of property damage in the region.

Alongside this morning's building data, Statistics NZ also released figures showing manufacturing sales remained at their lowest level in more than 10 years during the September quarter.

These numbers are prompting economists to raise the prospects of the economy having contracted during the September quarter. GDP stats for those three months will be released on December 23.

The biggest manufacturing falls were recorded in petroleum and industrial chemical manufacturing (down 8.2 per cent) and in paper manufacturing where sales were down 7.9 per cent.

The biggest rises in sales volumes were in transport equipment manufacturing (up 8.5 per cent) and beverage, malt, and tobacco manufacturing (up 4.1 per cent).

Excluding meat and dairy product manufacturing, sales volumes fell 1.9 percent.

The trend indicates the volume of manufacturing sales has generally been falling since the September 2007 quarter, down 12.6 percent, Statistics New Zealand said.

Goldman Sachs economist Philip Borkin said while today's statistics were broadly in line with expectations, there was still a chance that the economy actually contracted during the September quarter.

He is predicting a 0.2 per cent growth in GDP from the previous quarter.

"...the fall in residential construction activity was entirely expected," said Borkin. "Putting the impact of Canterbury reconstruction work aside, we believe residential construction activity looks set to languish over the coming quarters, given weak leading indicators (house sales and consents) and a belief that structural issues around affordability and credit availability are lingering."

Today's manufacturing and building data were two important partial indicators in helping to form an expectation for how much the economy grew during the September quarter, said Borkin.

He said he had already factored in negative contributions from both construction and manufacturing.

"In saying this, there are still further partial data to be released and there remains uncertainty with how much the Canterbury earthquake disrupted activity in the quarter. Hence, we cannot rule out the possibility that the economy actually contracted in Q3."

ANZ economist Mark Smith said that "on balance, today's data suggests some slight downside risk to our Q3 pick for a 0.2 per cent increase in GDP."

This risk would be firmed up by trade data coming out on Friday and energy data next week, but Smith said there was "a non-trivial risk of a negative Q3 GDP ".

Construction has gone off the boil in the second half of the year, with home building consents, excluding volatile apartments data, recording a fourth monthly decline in October.

The wider property market has been in a rut through much of this year, with muted house sales and declining values reflecting the focus of households to repay outstanding debts rather than ramp up new spending.


with BUSINESSDESK