Australian Construction Industry Forum Construction Forecasting Council CFC May 2004 Forecast

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May 2004 Forecast

• Australian ConstructionIndustry Forum
  Construction Forecasting Council (CFC)May
  2004 Forecast

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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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ObjectivesProject

• Forecasting non-residential construction to
  improve the industrys knowledge base
• Forecasts published free on the web
• Data is quarterly and sourced from the ABS Reed
  Construction Data
• Forecast horizon
• short-term quarter-by-quarter for two years
• long-term year-by-year for nine years
• Forecasts
• non-residential building by building function and
  region
• engineering construction by construction type and
  state
• construction employment by occupation and state
• Basis of Forecasts
• industry demand as a key driver
• leading indicators approvals, commencements,
  known large projects

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Objectives Model Outputs
Non-Residential Building
Construction Employment
Forecast outputs
Engineering Construction
by 9 building functions
by 7 types of construction
by 3 skill groups
Type
by 6 capital cities, 6 rest of states 2
territories
by 8 states territories
by 8 states territories
Geographic Detail
Short Term (8 quarters) Long Term (9 years)
Time horizon frequency
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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Work Done by Type by RegionWork Done

• approvals -gt commencements -gt work done -gt
  completions
• work done measures the current level of activity
• work done drives employment
• but approvals, commencements are used as leading
  indicators, as are large engineering projects
• original / seasonally adjusted / trend
• all ABS data are available in original form
• but forecasts for main aggregates are also
  seasonally adjusted
• values / chain volume (real)
• all ABS data are available in value form
• but forecasts for main aggregates are also in
  chain volume form

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Work Done by Type by RegionConstruction Types

• Type of Engineering Construction
• Roads
• Bridges, railways, harbours
• Electricity, pipelines
• Water and sewerage
• Telecommunications
• Heavy industry including mining
• Recreation and other

• Function of Non-res Building
• Retail/wholesale trade
• Offices
• Other commercial
• Industrial
• Educational
• Health aged care
• Entertainment recreational
• Accommodation
• Miscellaneous

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Work Done by Type by RegionRegions Non-res Bldg
(02/03 shares)
9
Work Done by Type by Region Regions Engineering
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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Industry Demand as Key DriverBus. Investment in
Market Industries

• Business investment in market industries based on
  economic factors
• prospective profitability (or actual rate of
  return) of the investment compared with the
  required rate of return - Tobins q-ratio
• Tobin q-ratios have been constructed for each
  market industry
• industry actual rate of return
• profit net of depreciation (under ABS inflation
  accounting) relative to value of capital,
  including construction capital, valued at
  replacement cost
• industry required rate of return
• long-term bond rate corrected for inflation and
  industry risk

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Industry Demand as Key DriverNon-res Constn by
Industry Group
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Industry Demand as Key Driver Non-res Constn
for Non-market
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Industry Demand as Key Driver Non-res Constn -
Market Industries
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Industry Demand as Key Driver Industries Using
Constn Types

• Transport Roads Bridges, railways, harbours
• Education Educational
• Property business services Offices
  Retail/wholesale trade
• Electricity, gas water Electricity, pipelines
  Water sewerage
• Mining Heavy industry
• Communications Telecommunications
• Accommn, cafes restaurants Accommodation
  Retail/wholesale trade Entn recn

Non-Residential Building Functions
Engineering Construction Types
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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Leading IndicatorsInclusions in Forecast

• Non-residential Engineering
• Known large projects no yes
• Approvals yes no
• Commencements yes yes

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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Construction Employment Occupation Categories

• Classified by the ABS according to the Australian
  Standard Classification of Occupations (ASCO).
• ASCO uses nine major occupation groups.
• For this project, the nine major groups have been
  aggregated into three broad skill groups, to suit
  the construction industry.

Tradespersons related
High Skilled
Low Skilled
Managers Admin.
Adv. clerical service
Professionals
Int. clerical, sales service
Associate Professionals
Int. prodn transport
Elem. clerical, sales service
Labourers related
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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Forecasting AssumptionsMacro Assumptions

• latest in 12 months
• Wage inflation 3.4 (to 03Q4) 3.5
• Unemployment 5.6 (March 04) 5.8
• CPI inflation 2.0 (to 04Q1) 2.5
• GDP (rolling year) 3.0 (to 03Q4) 3.2
• Cash rate 5.25 (3 May 04) 5.8
• 10-year bond 5.9 (3 May 04) 5.3
• A (US cents) 72 (3 May 04) 68
• Stable macro environment for construction
  industry apart from small further rise in
  interest rates

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Forecasting AssumptionsIndustry Investment, m
per year
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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Construction Activity Total, million per year
(real)
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Construction EmploymentEmployment by Occupation
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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Non-Residential Building Annual Growth Rates
(real)
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Non-Residential BuildingRetail/Wsale (m,
01/02 prices)
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Non-Residential BuildingOffices
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Non-Residential Building Other Commercial
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Non-Residential Building Industrial
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Non-Residential Building Educational
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Non-Residential BuildingHealth Aged Care
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Non-Residential BuildingEntertainment
Recreation
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Non-Residential Building Accommodation
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Non-Residential Building Miscellaneous
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Non-Residential BuildingCapital Cities (m,
01/02 prices)
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Non-Residential BuildingConclusions

• Total non-residential building has been rising
  strongly over the last two years.
• Normal 6 in 2001/02 followed by a very strong
  15 in 2002/03 (nominal)
• Non-residential building is forecast to continue
  rising in 2003-04
• total non-residential building forecast to grow
  by 10 in 2003/04 (nominal)
• offices, education and accommodation growing
• industrial, health, entertainment recreation
  building to remain steady
• Small fall for 2004/05
• Non-residential building is forecast to peak in
  Melbourne in 2003/04.
• From 2003/04, non-residential building in
  Melbourne will ease back to a normal level. This
  will be driven by a fall in offices and retail.

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Outline

• Objectives
• Concepts
• Work Done by Type by Region
• Industry Demand as Key Driver
• Leading Indicators
• Construction Employment
• Forecasting Assumptions
• Construction Activity
• Non-Residential Building
• Engineering Construction

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Engineering Construction Recent major
engineering starts

• project type start date value (bn)
• Gladstone alumina QLD mining 02Q2 1.1
• LNG train stage 4 WA elec., pipelines 02Q2 0.8
• Stanwell magnesium QLD mining 02Q3 1.0
• Parramatta rail link NSW rail 02Q3 1.1
• Vic regional fast train VIC rail 02Q3 0.5
• Cross city tunnel NSW road 03Q1 0.7
• Burrup ammonia plant WA mining 03Q2 0.5
• Darwin LNG plant NT mining 03Q2 1.2
• Westlink M7 NSW road 03Q3 1.1
• Telfer Deep Gold Mine Exp WA mining 03Q3 0.8

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Engineering Construction Forecast major
engineering starts

• project type start date value (bn)
• Aldoga aluminium smelter QLD mining 04Q2 3.1
• Lane Cove Tunnel NSW road 04Q2 0.8
• Perth Metro uground rail WA rail 04Q2 1.1
• Mitcham-Frankston Fway VIC road 04Q4 1.1

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Engineering Construction Annual Growth Rates
(real)
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Engineering ConstructionRoads (m, 01/02 prices)
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Engineering ConstructionBridges, railways,
harbours
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Engineering ConstructionElectricity, pipelines
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Engineering ConstructionWater Sewerage
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Engineering ConstructionTelecommunications
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Engineering Construction Heavy industry incl.
mining
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Engineering Construction Recreation and other
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Engineering ConstructionLarger States
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Engineering ConstructionConclusions

• Total engineering construction work done rose by
  a very strong 23 in 2002/03, driven by growth in
  mining construction.
• Forecast to remain at a high level, rising by 9
  in 2003/04 (nominal)
• road construction is forecast to remain strong
  due to commencement of major projects in Sydney
• mining is forecast to remain stable at a high
  level
• but telecommunications is sagging, as telco
  markets mature
• Normal rise of 5 forecast for 2004/05 (nominal)
• Road construction activity is forecast to rise by
  a strong 15 in 2004/05, as major road projects
  commence
• Construction activity is forecast to remain
  strong at a very high level in WA due to mining
  projects

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Construction EmploymentEmployment by State