1350.0 - Australian Economic Indicators, Oct 2010  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 30/09/2010   
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FEATURE ARTICLE: A STATISTICAL OVERVIEW OF THE CONSTRUCTION INDUSTRY


INTRODUCTION

The construction industry is the fourth largest contributor to Gross Domestic Product (GDP) in the Australian economy and plays a major role in determining economic growth. In chain volume terms, the construction industry accounted for 6.8% of GDP in 2008-09, compared with 7.0% in 2007-08. The industry had previously experienced seven consecutive years of growth as a proportion of GDP, since the introduction of the Goods and Services Tax (GST) in 2000-01. As at May quarter 2009 the construction industry employed 9.1% of the Australian workforce, making it Australia's fourth largest industry.

The construction industry operates in both the private and public sectors, engaging in three broad areas of activity; residential building, non-residential building and engineering construction. Demand for, and supply of, these services is driven by economic factors including population growth and consumer confidence, changes in interest rates and inflation. Most recently, government policies affecting housing and infrastructure projects have been an influence. The availability of resources, such as labour and building materials, and changes within closely linked sectors (e.g. agriculture, mining and manufacturing), also drive change in the industry.

There is a current media focus on the residential building component of construction, highlighting low levels of housing availability and affordability in Australia's major cities. In 2009, media interest centred around Australia's economic response to the Global Financial Crisis (GFC), which saw increased Government funding for infrastructure. Much attention has been given to the affect of government intervention in stimulating economic growth and maintaining demand for labour, particularly for the construction of residential and education buildings.


CONSTRUCTION INDUSTRY DEFINITION

The construction industry consists of those businesses mainly engaged in the construction of residential and non-residential buildings (including alterations and additions), engineering structures and related trade services classified under the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006.


CONTRIBUTION TO GROSS DOMESTIC PRODUCT

GDP is the total market value of goods and services produced in Australia within a given period, after deducting the cost of goods and services used up in the process of production, but before deducting allowances for the consumption of fixed capital. In chain volume terms, the construction industry's share of GDP declined to 6.8% in 2008-09, its lowest level since 2005-06. Prior to 2008-09, the construction industry had steadily increased its share of GDP from 6.2% in 2002-03 to 7.0% in 2007-08.

INDUSTRY GROSS VALUE ADDED, Construction Industry as percentage of total GDP
Graph: INDUSTRY GROSS VALUE ADDED, Construction Industry as percentage of total GDP
Source: Australian System of National Accounts, 2008-09 (cat. no. 5204.0)


Construction was Australia's fourth largest contributor to GDP during 2008-09, in current price terms. It ranked behind Financial and insurance services (10.8%), Manufacturing (9.4%), and Mining (7.7%).

INDUSTRY GROSS VALUE ADDED, Percentage of GDP by Industry
Graph: INDUSTRY GROSS VALUE ADDED, Percentage of GDP by Industry
Source: Australian System of National Accounts, 2008-09 (cat. no. 5204.0)


CONSTRUCTION WORK DONE

In chain volume terms, the value of construction work done during 2008-09 was $151.3 billion, an 11.0% increase from the previous financial year. The five years to 2008-09 saw value of work done on building and engineering construction increase by 10.1% and 84.2% respectively. This discrepancy in growth rates has seen a shift in the split between building and engineering construction work done in Australia. Building construction represented 62.5% of total building in 2004-05, compared to 50.2% in 2008-09.

CONSTRUCTION WORK DONE, Chain Volume Measures
2004-05
2005-06
2006-07
2007-08
2008-09
Value ($billion)
Residential building
44.9
42.6
42.9
43.2
42.9
Non-Residential building
23.9
26.9
29.3
32.0
33.0
Total building
68.9
69.6
72.3
75.3
75.9
Engineering Construction
41.0
51.5
55.7
61.1
75.4
Total
110.3
121.2
128.0
136.4
151.3
Percentage change from previous year
Residential building
-0.2
-5.0
0.7
0.7
-0.7
Non-Residential building
4.7
12.7
9.0
9.2
2.9
Total building
1.4
0.9
3.9
4.1
0.8
Engineering Construction
14.6
25.7
8.2
9.7
23.4
Total
5.8
9.8
5.6
6.5
11.0



INDUSTRY PERFORMANCE

In 2008-09, operating profit before tax for the construction industry was $27.6 billion, a decrease of 8.0% on the previous financial year.

Total income rose from $259.7 billion in 2007-08 to $266.1 billion in 2008-09, an increase of 2.5%. Total expenses rose from $231.0 billion in 2007-08 to $237.3 billion in 2008-09, an increase of 2.7%.

INDUSTRY PERFORMANCE, Construction - Current Prices
2004-05
2005-06
2006-07
2007-08
2008-09
Financial Performance
$b
$b
$b
$b
$b
Sales of goods and services
170.5
196.1
231.8
256.0
261.4
Funding from government for operational costs
0.0
0.1
0.4
0.3
0.7
Interest income
0.7
0.6
0.9
1.1
1.4
Other income
3.0
2.1
4.2
2.4
2.6
Total income
174.2
198.8
237.3
259.7
266.1
Selected labour costs
25.9
29.6
37.7
42.4
45.1
Cost of sales
123.8
141.5
160.8
178.8
181.7
Depreciation and amortisation
3.4
3.6
2.5
3.4
4.1
Interest expenses
2.2
2.7
3.2
3.7
5.6
Other operating expenses
2.0
1.8
5.3
1.8
2.3
Total expenses
157.7
179.0
204.9
231.0
237.3
Change in inventories
0.4
0.0
-3.3
1.3
-1.2
Operating profit before tax
16.9
19.5
29.2
30.0
27.6



BUSINESS INVESTMENT

In 2008-09 private new capital expenditure in the construction industry was $4.1 billion, an increase of 0.4% on the previous financial year. Over the same period, expenditure in all industries increased by 16.9%. Growth in expenditure for the construction industry in 2008-09 was at its lowest rate since 2002-03, and below the growth rate of all industries for the first time since 2005-06. The construction industry was the tenth largest contributor to private new capital expenditure in 2008-09 at 3.6% of the total, while the largest expenditure by a single industry was in Mining, contributing 33.6%.

PRIVATE NEW CAPITAL EXPENDITURE(a), Construction Industry
2005-06
2006-07
2007-08
2008-09
$b
$b
$b
$b
Construction
3.1
3.4
4.1
4.1
Total All Industries
80.6
87.5
96.8
113.1
(a) Current prices



LABOUR

The construction industry is one of the largest employing industries in Australia. As at the May quarter 2009, there were 984,100 people employed in the construction industry representing 9.1% of the total workforce. It was the fourth largest employing industry behind Retail Trade (11.2%), Health Care and Social Assistance (11.0%) and Manufacturing (9.2%).

EMPLOYMENT BY INDUSTRY, Percentage of total employment - May 2010
Graph: EMPLOYMENT BY INDUSTRY, Percentage of total employment—May 2010
Source: Labour Force, Australia, Detailed, Quarterly, May 2010, (cat. no. 6291.0.55.003)

Over the three years from May 2006 to May 2009, the number of persons employed in the construction industry increased from 892,100 to 984,100 persons, a rise of 10.3%. In the same period, the number of people employed in all industries increased by 5.6%. Of the 984,100 persons employed in the construction industry, 65.4% were employed in construction services, 23.5% in building construction, 7.1% in heavy and civil engineering construction and 3.9% in general construction activities, not further defined.

PERSONS EMPLOYED(a), Construction Industry - May 2009
May 2006
May 2007
May 2008
May 2009
'000
'000
'000
'000
Building Construction
Residential Building
71.0
70.0
90.0
73.0
Non-Residential Building
41.0
42.0
43.0
48.0
Building Construction, nfd
100.0
104.0
115.0
110.0
Heavy and Civil Engineering Construction
Heavy and Civil Engineering Construction
48.0
74.0
60.0
70.0
Construction Services
Land Development and Site Preparation
53.0
51.0
55.0
48.0
Building Structure Services
87.0
83.0
95.0
91.0
Building Installation Services
182.0
211.0
212.0
226.0
Building Completion Services
192.0
181.0
201.0
189.0
Other Construction Services
96.0
89.0
88.0
85.0
Construction Services, nfd
4.0
7.0
3.0
5.0
Construction, nfd
18.0
25.0
15.0
38.0
Total Construction
892.0
937.0
976.0
984.0
Total All Industries
10 213.0
10 523.0
10 755.0
10 782.6
(a) All data presented are for May Quarter
Note: nfd - not further defined


Hours Worked

Over the period from May 2006 to May 2009, the average hours worked per week by employees in the construction industry was consistently higher than the average for employees in all industries. During May 2009, average hours worked per week by construction industry employees was the third highest of any industry, ranking behind only Mining (43.9 hours) and Agriculture (43.6 hours). On average, the least hours per week were worked by employees in the Accommodation and Food Services industry (27.7 hours).

AVERAGE HOURS WORKED PER WEEK, Construction Industry
May Quarter 2004
May Quarter 2005
May Quarter 2006
May Quarter 2007
May Quarter 2008
May Quarter 2009
Construction
38.5
38.1
38.8
39.0
38.9
37.8
Total All Industries
34.6
34.6
34.6
34.6
34.6
33.7
Note: nfd - not further defined


Average Weekly Earnings

The average weekly earnings (AWE) for employees engaged in the construction industry is higher than the average across all industries. This applies to both full-time adult employees and the total for all employees. In May 2009, the AWE for full-time adult employees and all employees in the construction industry was 7.9% and 26.8% higher than the AWE for all industries, respectively. For all employees in the construction industry, AWE have increased 25.8% between 2006 and 2009, compared to an increase of only 12.1% across all industries.

AVERAGE WEEKLY EARNINGS(a), Construction and All Industries
2006
2007
2008
2009
$
$
$
$
Construction Industry
Full time adult, total earnings
1 067.1
1 167.6
1 225.0
1 332.2
All employees
926.4
1 018.2
1 036.7
1 165.0
All Industries
Full time adult, total earnings
1 073.6
1 124.1
1 171.5
1 234.9
All employees
819.7
858.5
885.0
918.6
(a) All data presented are for May Quarter



Status of Employment

Of persons employed in the construction industry in May 2009, 72.5% (713,000) were employees, compared to 88.6% for all industries. Persons operating on an 'Own Account' basis made up the second largest group of workers in the construction industry, at 22.1% (218,000). This compares to only 8.6% for all industries.

PERSONS EMPLOYED, By status of employment - May 2009
Type of Employment
Employee
Employer
Own account worker
Contributing family worker
All employees
Construction ('000)
713.0
49.0
218.0
4.0
984.0
% of total employment
72.5
5.0
22.1
0.4
100.0
All Industries ('000)
9 552.1
264.7
932.0
32.9
10 781.7
% of total employment
88.6
2.5
8.6
0.3
100.0


This makes the construction industry the second most likely to have workers operating on an 'Own Account' basis. As at May 2009, 38.5% of persons in the Agriculture, Forestry and Fishing industry were 'Own Account' workers.



Industrial Disputes

The number of industrial disputes in the construction industry has increased by 73.3% over the past two years, however the figure in 2008-09 remains 81.6% lower than during 2004-05. Industrial disputes for all industries have fallen 66.3% over the same period. In 2008-09 the construction industry contributed to 27.1% of all industrial disputes, despite representing only 7.7% of all employees involved in such disputes.

During 2008-09, 12,900 employees in the construction industry were involved in industrial disputes, more than double the number for the previous year. In the same period, the number of working days lost in the construction industry as a result of industrial dispute increased 175.3%, compared to a 23.5% fall across all industries. The number of employees from the construction industry involved in industrial disputes has fallen 84.3% since 2004-05, while the resultant loss of working days for employees has fallen 80.1%.

Industrial Disputes
2004-05
2005-06
2006-07
2007-08
2008-09
Construction Industry
Number of Disputes (no.)
283
146
30
36
52
Employees involved ('000)
82.2
41.6
8.1
6.4
12.9
Working days lost ('000)
111.9
52.4
9.3
8.1
22.3
Working days lost per employee involved
1.4
1.3
1.1
1.3
1.7
All Industries
Number of Disputes (no.)
570
354
144
166
192
Employees involved ('000)
156.2
227.1
73.4
131.3
167.0
Working days lost ('000)
243.2
188.6
88.7
164.9
126.2
Working days lost per employee involved
1.6
0.8
1.2
1.3
0.8


In 2008-09 the ratio of working days lost per employee involved in industrial disputes rose from 1.3 to 1.7 days, its highest level since 2002-03. The ratio for all industries fell from 1.3 to 0.8 days over the same period. Employee's in the construction industry, engaged in an industrial dispute during 2008-09, lost nearly one additional day of work, when compared to employees involved in industrial disputes across all industries.



PRODUCER PRICES

Producer price indexes for the materials used in house construction rose continuously between 2005-06 and 2008-09, increasing by 14.1%. In 2008-09 the annual growth rate of the index was 6.5%, almost double that of the previous year. Over the four year period to 2008-09, the growth in producer price indexes for materials used in house construction was consistently less than growth in the index for manufacturing industries, which rose 21.5%.

PRODUCER PRICE INDEXES, Materials used in building(a)
2005-06
2006-07
2007-08
2008-09
Materials used in House Building
142.0
147.0
152.1
162.0
% change
na
3.5
3.5
6.5
na not available
(a) Reference year 1989-90 = 100.0


The producer price index for output from the construction industry has also increased steadily between 2005-06 and 2008-09. Building construction increased 13.3% over the period, driven by an increase in the indexes for Non-residential building construction, 15.1%, Other residential building construction, 12.3%, and House construction, 11.9%. The producer price index for output from Road and bridge construction rose 17.9% over this period.

PRODUCER PRICE INDEXES, Output of Construction Industry(a)
2005-06
2006-07
2007-08
2008-09
House construction
136.1
139.7
146.8
152.3
Residential building construction n.e.c.  
138.7
144.8
152.3
155.7
Non-residential building construction
138.2
146.2
155.4
159.0
Building construction
136.8
142.5
150.4
155.0
Road and bridge construction  
133.2
139.9
147.5
157.0
(a) Reference year 1989-90 = 100.0



CONCLUSION

The construction industry continues to be a major sector in Australia's economy. In many ways industry performance both drives and is driven by levels of employment and economic growth. As a contribution to GDP, construction fell to 6.8% in chain volume terms for 2008-09, its lowest level since 2005-06 and first such fall since 2000-01. Large investment in engineering projects and economic issues affecting building construction has seen the value of construction work done in 2008-09 almost evenly split between these two activities. In 2004-05 building construction and engineering construction contributed 62.7% and 37.3% respectively. Recent construction industry related media has focussed on the affects of Global Financial Crisis, Government infrastructure spending and housing availability.

Despite a declining contribution to GDP in 2008-09, more people are employed in the construction sector than ever before. Over the three year period to May 2009, growth in Average Weekly Earnings in the Construction Industry rose 13.7% faster than for the average of all sectors. During the same period Average Hours Worked in the construction industry remained higher than the average for all industry groups, showing a difference of 12.2% as at May 2009.

Construction remains one of Australia's largest and most important industries, with movement in industry indicators often directly linked to changes in social, economic and political trends.

FURTHER INFORMATION

For further information on this article please contact Alex Nitschke on Adelaide (08) 8237 7310 or email <alex.nitschke@abs.gov.au>