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national survey of building and construction
BUILDERS SEE MORE PAIN, LITTLE GAIN IN 2013
Each quarter Master Builders in states and territories are asked to complete an online survey canvassing their views on the national economy and conditions within their own enterprises.
Building conditions worsen…
Builders continue to report poor own-business activity with key indices falling below levels recorded during the global financial crisis. In the December quarter, builders reported that they expect industry activity and employment to fall in the next 6 months. Though declining at a lesser rate than in the previous quarter, the index measuring sales contracts remained firmly in the ‘much lower’ category despite recent rate cuts. A key forward indicator — the index for display centre traffic/enquiries — rose during the quarter, but remained at G.F.C. levels.
Building activity. Next 6 months-higher, lower? ABS Building work done 60 (RHS)* 70 Index 50 40
25 15 5 %ch
-15 MBA ‘expectation of building activity’, trend (LHS) Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
*A%ch Building Work Done (constant price) ABS 8755.0
…profit collapse sees builders cut jobs
Builders reported a fall in own-business profitability during the December quarter. Over the past year, the index has fallen sharply, below G.F.C. levels. And builders expect profits to continue to deteriorate over the next six months. It is therefore not surprising that in an environment of poor profitability, declining activity and lower sales, the survey found builders expect to cut back on employees and sub-contractors in the period ahead.
70 60 Index 50
Employment. Employees/subcontractors next 6 months? higher
10 5 %ch
Residential Building — light at end of tunnel?
Non-residential builders continue to experience declining activity with little in the pipeline to suggest prospects will pick up. Residential conditions remain dire. Despite a small improvement (to a less negative reading), the index measuring activity in the December quarter remained well below the neutral 50 mark (signalling deterioration). Builders are more optimistic about future prospects for residential building. The index measuring where the sector is headed moved into positive territory — above the neutral 50 mark — for the first time in nearly two years. Builders now expect residential conditions to improve over the next six months. Lower interest rates and regional shortages have likely encouraged the change in sentiment. Whilst welcome, any immediate return to strong levels of activity is unlikely. Policy initiatives are needed to address a raft of factors that threaten to stymie a sustainable lift in residential building activity.
0 MBA ‘expected level 40 of employees and -5 lower subcontractors’, trend (LHS) ABS Building and Construction employment* (RHS) Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
*A%ch Construction Employment (trend) ABS 6291.0.55.003
Residential. Where is activity headed?
50 40 Index 30 20 10
Availability of finance and labour as constraints
…risk (any) recovery is derailed by credit crunch
The availability of finance as a constraint on business continues to affect the building industry. And the constraint shows little sign of easing. During the December quarter, the survey index tracking finance as a constraint worsened. Nearly 40 per cent of respondents were concerned that the availability of finance was having a major/ large effect on their business, a reading worse than that recorded during the height of the G.F.C. Master Builders Australia Level 1, 16 Bentham Street (PO Box 7170) YARRALUMLA ACT 2600
Availability of finance constraint
Availability of labour constraint Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Tel: 61 2 6202 8888 Fax: 61 2 6202 8877 firstname.lastname@example.org www.masterbuilders.com.au
national survey of building and construction Builders expect industry activity to fall…
The index measuring expectations for building industry activity was unchanged in the December quarter, but remains at a level well below the neutral 50 mark. This means that builders expect overall industry conditions to be substantially lower over the next six months relative to the past six months. After recovering from the depths plumbed during the global financial crisis, the index clawed its way back into positive territory during the second half of 2009 only to trend down thereafter, albeit in a saw-tooth pattern as shown in the chart.
70 60 Index 50 40 30
December quarter 2012
In the next 6 months, what is your expectation of building industry activity? higher
Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Own business activity. Current level of activity? 90 80 Index 70 60 50 40 Dec-02 80 70 Dec-04 Dec-06 Dec-08 improving poor Dec-10 good
Own business conditions weaken…
The index measuring builders’ current level of own business activity fell again in the December quarter, from 47.4 to 45.2 remaining below the neutral 50 mark that indicates satisfactory levels. Following a trend decline in the index over the past two years, the index is now below levels recorded during the global financial crisis in late 2008, early 2009.
Own business activity. Next 6 months?
…builder sentiment falls…
The index measuring builders’ views on their own future business conditions rose in the December quarter, without reversing the trend decline of the past 18 months. The fall is another indication that Reserve Bank cuts to interest rates in May, June and October have failed to improve sentiment. The index is below the neutral 50 mark indicating that builders believe own business activity will deteriorate over the next six months.
60 50 40 Dec-02 Dec-04 Dec-06 deteriorating Dec-08 Dec-10 Dec-12
The index measuring own business profitability fell again, in line with the trend decline. The index has fallen well below the neutral 50 mark to a level below that reached during the global financial crisis. In terms of builders’ expectations regarding future profits, the index fell again in the December quarter. The index is below the 50 mark, indicating that builders expect profits to deteriorate over the next six months. Again, the fall in the index this quarter is disappointing in the wake of lower interest rates. The index measuring sales contracts in the past six months compared to what builders had expected, rose in the December quarter but the index remains firmly in the ‘much lower’ classification. As the chart shows, the index has fallen to a similar level to that reached during the G.F.C after a less disappointing result in the 2009/10 financial year as a result of the stimulus programs.
70 Profits. Last 3 months profitability? 60 50 40 Dec-02 Dec-04 Dec-06 Dec-08 poor Dec-10 Dec-12 good
60 Sales Contracts 50 40
Dec-02 Dec-04 Dec-06 Dec-08 Employment intentions - next 6 months 70 60
…jobs to go…
Builders are asked about their intentions regarding the likely level of employees and subcontractors for the next six months relative to now. The index fell back to 37.0, well below the 50 mark and indicating that builders expect to reduce their workforce in the period ahead.
50 40 Dec-02 70 60 Dec-04 Dec-06 Dec-08 lower Dec-10 Dec-12 Apprentices. In next 6 months intend to? put more on
The ‘apprentice’ index was unchanged at 57.6 in the December quarter after a very low reading of 50.2 two quarters ago. Although counterintuitive (considering the generally dismal operating conditions), there was another increase in the proportion of respondents indicating they will ‘put on more’ apprentices. The ‘no change’ category is still dominant despite falling from three quarters of respondents to two thirds over the past year.
50 40 Dec-09 Dec-10 release some Dec-11 Dec-12
national survey of building and construction Display centre traffic/enquiries very weak…
The index for display centre traffic/enquiries rose to 38.2 in the December quarter, but remains well below the neutral 50 mark. As the chart shows, the index remains around the low point reached during the worst of the G.F.C. As a key forward indicator, this does not auger well for future sales and activity levels in the building and construction industry.
December quarter 2012
Display centre traffic-enquiries. Past 3 months v. previous? higher
60 50 Index 40 30
lower Dec-09 Dec-10 Dec-11 Dec-12
…backlog of work
Builders’ work-in-hand rose in the December quarter. The index appears to be trending at a lower level with high quarterly volatility. The proportion of respondents reporting less than 3 month’s work is up on the same quarter a year ago. The industry badly needs a recovery in private sector work to offset falling public sector demand.
Work on books. Proportion with greater than 6 months of work
Respondents are asked whether they expect input cost increases (labour/materials) to be higher or lower over the next six months, compared to the past six months. The index fell back again to 61.8 in the December quarter but has been essentially unchanged for more than two years. The slight drift lower in the face of weaker conditions is in marked contrast to the period of the G.F.C. The index peaked at 75 in June quarter 2008, before the G.F.C. and economic downturn saw the index fall away sharply.
40 30 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Input costs. Expected increases next 6 months v. previous period?
higher than past 6 months
Non-residential building stays well below par…
Builders with significant operations in both residential and non-residential sectors are asked a series of questions relating to the respective sectors—‘how would you describe current conditions’ and ‘where do you believe activity is headed’. In the non-residential sector, the index measuring current conditions fell to 31.0 (previous quarter reading 35.5) remaining markedly below the ‘satisfactory’ 50 level. The index measuring expectations about future activity fell from 42.6 to 38.0 in the December quarter, again, well below the neutral mark. Non-residential builders are experiencing falling activity levels with little in the pipeline to replace the building-related government stimulus programs.
60 50 40 Dec-08 Dec-09 lower than past 6 months Dec-10 Dec-11 Dec-12
How would you describe current conditions in the non-residential sector? Where is activity heading?
40 30 Dec-11 Mar-12 Jun-12 Sep-12
…residential in doldrums but sentiment improves
For the residential sector, the index for current conditions rose to 35.9 (from 34.2), but remains well below the neutral 50 mark and at G.F.C. levels. In terms of where the residential sector is headed, as the chart shows, the index rose to 52.4 in the December quarter (from 42.6), indicating that builders expect residential building conditions to improve over the next six months. This is the first time in two years that the index has breached the positive side of the neutral 50 mark.
60 50 Index 40 30
How would you describe current conditions in the residential sector? Where is activity heading? expected current
Credit crunch worsening?
Financial constraints increased for builders in the December quarter, with 39.4 per cent of respondents concerned that as a constraint, availability of finance was having a major/large effect on their business. That proportion is actually higher than that recorded during the height of the G.F.C. Builders see interest rates as a slight negative in terms of impacting on forward orders/enquiry rates/new contracts —disappointing, considering the survey was conducted after the May, June and October decisions to cut official rates.
70 60 50 40
Impact of interest rates on forward orders
national survey of building and construction Availability of labour…
Respondents are asked about the degree of difficulty in finding a range of subcontractors/employees. A high index reading indicates large to critical difficulty in finding employees or sub-contractors. A low index reading indicates builders are experiencing slight or no difficulty in finding subcontractors/employees. At the national level in the December quarter, the degree of difficulty in finding employees/subcontractors remained at very low levels and generally remain well down on levels of 12 to 18 months ago. There is currently little difficulty finding employees or subcontractors. The major decline in industry conditions in recent times has been accompanied by a dissipation of previous skills shortages as the slowdown in industry conditions masks the underlying structural problem. As the chart shows, before recent events, builders had begun to once again experience some difficulty finding certain categories of subcontractors/employees in the post G.F.C. stimulus-led rebound.
Difficulty finding employees/subcontractors?
December quarter 2012 IR constraint…
60 50 Index 40 30 Dec-04 Dec-06 Dec-08 no effect Dec-10 Dec-12 Are industrial relations constraining activity? critical
Respondents are also asked to indicate the degree to which they perceive industrial relations is acting as a constraint on their business. A dramatic fall in the index occurred in 2005 and 2006 associated with the introduction of the BCII Act and establishment of the ABCC. The index rose in the first three quarters of 2008 as industrial relations increased as an issue for builders. After easing back in the wake of the G.F.C. the index began to rise in the latter part of 2009 and into 2010, before easing back.
60 40 20
…spikes higher in wake of Grocon/other disputes
The index fell back a little (to 38.5) in the December quarter following the sharp rise experienced in the index during the September quarter (to 40.5 from 30.5 the previous quarter, see chart). The spike was due to a number of major industrial relations disputes that occurred then, including the Grocon blockade and the Children’s Hospital in Brisbane. The index remains at its highest level since 2005.
major difficulty Site Managers
Carpenters Foremen/ Supervisors Bricklayers
no difficulty Dec-11 Dec-12
National economic conditions…
With regard to the national economy, the index measuring perceptions about national business conditions remains well below the ‘satisfactory’ mark. Indeed, at 33.1, it is currently well below levels reached during the G.F.C. and 2000/01 related downturns. Expectations regarding national business conditions have plateaued at a level below the 40 mark, well below the neutral 50 mark but without plumbing depths reached during the G.F.C. and 2000/01 related downturns.
National availability of labour Jun-12
Project Manager Site Manager Foreman / Supervisor Carpenters Tilers - Wall and Floor Bricklayers Office Staff Concretors Steel Fixers Painters Plaster Fixers Tilers - Roof Labourers Building Consultants Scaffolders Electricians
Sep-12 37.7 36.7 35.0 21.7 20.3 22.4 25.5 20.5 19.5 15.9 15.8 16.7 20.9 16.2 18.4 17.1
Dec-12 31.8 31.8 30.4 26.2 25.8 22.7 21.9 20.6 19.5 19.4 17.9 17.4 17.1 17.1 16.8 15.4
30.3 27.7 24.1 18.2 17.2 17.6 18.8 19.5 17.8 12.5 13.6 18.2 15.4 15.3 13.9 15.6
About the survey
The survey of building and construction is a national survey of Master Builders’ members published on a quarterly basis. In the December quarter 2012, 482 responses were received from builders involved in all sectors of the building and construction industry: residential, renovations, commercial building, engineering construction, subcontracting and materials supply. Since March 2010, Queensland results have been unavailable. The survey allows members of Master Builders to present their views on the national economy and the condition of their own enterprises. The survey also provides information regarding on-going constraints on activity and availability of resources as well as selected supplementary questions. Various state/territory offices of Master Builders also release individual survey results. In calculating the index the responses are weighted according to firm size. An index reading of 50 indicates a neutral or satisfactory outcome, readings above 50 usually suggest a more positive result and those below 50 a more negative outcome. The index is calculated by taking a weighted sum of the proportion of responses to every answer from an index between 100 and 0. The strongest response is given the greatest weighting of one with the weakest given the lowest weighting of zero, and proportional weighting in between. As a result, if all respondents answered the strongest response, the index would be 100. If they all answered the weakest response, the index would be zero. If n is the number of response categories, prop is the proportion of responses in a given category and i is the response category, then the formula for the index is: Index = n n−i ∑ prop, n − 1 . i =1
Note: Respondents are asked about the degree of difficulty in finding a range of subcontractors/employees. The higher the index, the more builders are experiencing large difficulty in finding employees or sub-contractors. A low index reading indicates slight or no difficulty in finding subcontractors/employees.
© Master Builders Australia Limited 2013
Disclaimer: The national survey of building and construction is not legal advice. Whilst every care has been taken in preparing this document, no responsibility will be accepted for actions taken in reliance upon information contained in this document.
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