HOW
THE MINING BOOM CHANGED THE PROFILE OF THE AUSTRALIAN BUILDING AND CONSTRUCTION
INDUSTRY
The way we see and understand an industry is based on
the data we get from the national accounts and other collections done by the
Australian Bureau of Statistics.
For the Australian construction industry the most widely
seen data is the value of work done, as shown in Chart 1, with the level of
activity in residential building, non-residential building and engineering
construction. Our understanding of the industry is largely based on these three
sectors, and the major phenomena of the last decade has of course been the
increase in engineering work during mining boom 1 from 2001-2007 and mining
boom 2 from 2010-2014.
Chart 1.
Source: Construction Activity: Chain Volume Measures
ABS 8782.
Now the mining boom is over, there has been a lot of
talk about the role of the building and construction industry in the macroeconomic
transition, as the contribution to growth in gross domestic product (GDP) from
mining investment now negative, other sources of growth are important. This
transition is from the resource investment driven economy of a few years ago,
when business investment peaked at an all-time high of 18 percent of GDP, to a
more balanced, services and information economy that might give us a chance in
the 21st century. The macroeconomic hope that growth in residential
and non-residential building will support employment and output is currently
being tested as the value of Engineering work is falling faster than
Residential and Non-residential building increases.
The effect of the mining boom on the industry and the
economy is an ongoing macroeconomic story. However, while a lot of attention
has been given to effects on the main macro indicators of gross domestic
product, employment, and inflation of construction costs, there has been less
discussion about the effects on the industry. At a structural level there have
been significant changes in the shares of construction industry output,
employment and income between Engineering and Residential over the last decade,
and these have changed the profile of the industry. This structural change is
investigated in the charts below.
Beyond the regular detailed output and activity stats
from the ABS there are few data sources. An infrequent construction industry
survey is published (ABS 8772, last two in 2011 and 2003). However, there is
also a relatively new annual publication from the ABS called Australian Industry (ABS 8055). This
uses a different sample of private sector firms to get mostly financial data on
a wide range of balance sheet items. The data goes back to 2006-07 and has
eight main series. As explained by the ABS:
This
publication presents estimates of the economic and financial performance of
Australian industry in 2013-14. The estimates are produced annually using a
combination of directly collected data from the annual Economic Activity Survey,
conducted by the Australian Bureau of Statistics, and Business Activity
Statement data provided by businesses to the Australian Taxation Office.
This is the modern approach to national statistics,
accessing and organizing data from a range of sources, mostly digital. The report
from a recent inquiry into the UK’s Office of National Statistics, that I
reviewed here,
recommended greatly increased use of digital data sources and data mining for
collecting economic statistics.
Australian
Industry provides a useful data set to compare
industries with, and to compare sectors (called divisions) within industries. To
get an idea of Construction in the wider economy, Chart 2 uses the data for the
Total All Selected Industries and the Construction Industry respectively for
the eight main data series produced. The effect of the building programs used
in response to the financial crisis in 2007-08 are clearly shown, and were an
industry windfall as profits spiked. Importantly, the funding flowed through
the industry as expenses and value added both increased. Based on the ABS
Construction multiplier of 2.9, where $1 million of construction work
creates extra spending of $2.9 million and 37 jobs across the whole economy,
that expenditure worked well as a Keynesian fiscal stimulus.
We know construction is about 8 percent of Australia’s gross
domestic product percent, and that should be taken into account in the
macroeconomic picture. The big question is over employment and job creation,
and here the growth trend in employment in Chart 2 from 9.5 percent to nearly
11 percent, with another year of big increases in residential building following
in 2015, is encouraging. However, while the mining boom seems to have lifted construction slightly, in Chart 2, it does not seem to have had a major effect on construction in relation to other industries.
Chart 2.
Source Australian Industry ABS 8155.
The eight Australian
Industry series in Chart 2 are also given for three industry sectors,
however instead of the three types of work in the output stats, they are
Building construction, Heavy and civil engineering construction, and
Construction services. These are the industry classifications used in the Australian and New Zealand Standard
Industrial Classification (ANZSIC 2006), with further subdivisions of the
three main sectors. (In ANZSIC Construction services is divided into four main
trade groups like site preparation and finishing trades.)
This gives us a different view of the mining boom, and
also the way the construction industry was affected by the mining boom, using
three of the eight items shown in Chart 2. The three are: the number of people employed,
total income, and industry value added. Chart 3 has the original values in
dollars and people for these.
Chart 3.
Source Australian Industry ABS 8155.
