A steep slide in building approvals casts doubt on the economy's fabled "rebalancing".
Both residential and non-residential building approvals fell in April, according to data from the Australian Bureau of Statistics (ABS) on Monday.
Towards the end of last year, building approvals and lending to both home-buyers and investors were on the rise.
The trends supported the idea that the economy was successfully managing the transition from growth led by the mining investment boom to a more broad-based pattern growth.
Central to this transition - sometimes referred to as the rebalancing or baton change - was the building sector, which has in the past been sensitive to low interest rates, such as we have now.
But the falls in building approvals, the third in a row for the residential sector and the fourth - to a nine year low - for non-residential building, has changed all that.
The value of approvals in April was $5.88 billion, down by $2.31 billion or 28 per cent from the $8.19 billion monthly average for the final quarter of last year.
"The medium-term outlook for building construction has weakened sharply," ANZ property market analysts David Cannington and Paul Braddick said in a report after Monday's figures.
"Despite expectations that non-residential and residential building will go some way to offsetting weaker mining investment in the coming years, today's data highlights the tentative nature of the current cyclical recovery in building activity, particularly for the high-density housing and commercial building sectors."
High office vacancy rates were affecting demand for new office building, while the outlook for housing construction was vulnerable to economic uncertainty and consumer sentiment, they said.
The slowdown in approvals might turn out to be temporary.
The proximity of the budget in May could have caused some building projects to be put on ice.
There is also the chance that the timing of Easter and, a week later, the Anzac Day long weekend in the second half of April slowed the flow of approvals by local councils.
Whether the trend is as weak as the figures suggest, the level of approvals has still clearly fallen.
The effect will take a while to flow through into actual work being done.
Commonwealth Bank economist Michael Workman said the lag between approvals and construction work being done is longer than previously experienced, thanks to the greater proportion of big, multi-unit projects these days.
"We expect to see sharp rises in the construction activity data in 2014," he said.
"It should also flow into big box retailers as the new dwellings are kitted out."
But that type of optimism will become increasingly hard to sustain if the trend in approvals remains low or, even worse, heads down further.
Share
