March quarter 2013

national survey of building and construction

BUILDER SENTIMENT IMPROVES

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

Indicators begin to turn up

The index measuring expectations for building industry activity picked up in the March quarter. Lower interest rates may finally be working to improve sentiment. In the previous seven quarters builders said they expected to see declining industry activity, but they now expect conditions to remain essentially unchanged. Builders views on their own future business conditions improved in the March quarter, reversing the decline seen over the past year and a half. The index rose above the neutral 50 mark, indicating that builders believe own business activity will improve over the next six months. Builders expectations regarding future profits also picked up in the March quarter. Rather than any further deterioration in profits over the next six months, builders expect no change. Builders current level of own business activity rose appreciably in the March quarter with a change from poor to satisfactory business conditions. The index is showing signs of bottoming following a trend decline in the index over the past two years to levels below that recorded during the global financial crisis. Own business profitability rose slightly in the March quarter but the index remains well below the neutral 50 mark. It may be some time before industry profitability improves.
Index 70 60
Index

In the next 6 months, what is your expectation of building industry activity? higher

50 40 30 Mar-07 Mar-09 lower Mar-11 Mar-13

but conditions remain weak

80 Own business activity & profits - next 6 months? business activity next 6 months 70 60 50 40 Mar-07 profits next six months Mar-09 Mar-11 Mar-13

Improvement in traffic/enquiries
The index for display centre traffic/commercial enquiries rose markedly in the March quarter. Although remaining below the neutral 50 mark, the index is now higher than the average reading recorded during the past nine years. As a key forward indicator, the improvement in display centre traffic/enquiries may be another sign that the market is finally responding to lower interest rates and that the worst may be behind the building industry.
Index

80 Own business activity & profits - current level? own business activity 70 60 50 40 Mar-07 Mar-09 Mar-11 Mar-13 profits

yet to feed into stronger sales/order books

For a stronger backlog of work to come through, the industry needs improved display centre traffic and commercial enquiries to translate into stronger sales which, in turn, will flow into builders order books. Sales contracts remained at an essentially unchanged level in the March quarter, remaining firmly in the much lower category. Builders work on the books dipped fractionally in the March quarter and is trending at low levels. An improvement in sales is needed if builders are to to enjoy a recovery in the pipeline of work, business conditions and profitability.
Master Builders Australia Level 1, 16 Bentham Street (PO Box 7170) YARRALUMLA ACT 2600

60 50 Index 40 30

Sales contracts & display centre traffic/commercial enquiries traffic/enquiries

sales

Mar-07

Mar-09

Mar-11

Mar-13

Tel: 61 2 6202 8888 Fax: 61 2 6202 8877 enquiries@masterbuilders.com.au www.masterbuilders.com.au

national survey of building and construction Pick up in builders expectations for industry
The index measuring expectations for building industry activity picked up sharply in the March quarter, from 41.9 to 47.3, not far from the neutral 50 mark. The result indicates that lower interest rates may be finally working to improve the outlook. After seven quarters during which builders have expected overall industry activity to be lower over the following six months relative to the preceding six months, builders now expect conditions to remain essentially unchanged.
70 60 Index 50 40 30

March quarter 2013

In the next 6 months, what is your expectation of building industry activity? higher

lower Mar-13

Own business conditions turning around

The index measuring builders current level of own business activity rose appreciably in the March quarter, from 45.2 to 51.3, above the neutral 50 mark indicating a return to more satisfactory business conditions. Following a trend decline in the index over the past two years to levels below that recorded during the global financial crisis, the index may have troughed.

Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Own business activity. Current level of activity? 90 80 Index 70 60 50 40 Mar-03 Mar-05 Mar-07 Mar-09 Own business activity. Next 6 months? 80 improving 70 Index 60 50 40 deteriorating Mar-11 good poor Mar-11 good

own business prospects improve

The index measuring builders views on their own future business conditions rose in the March quarter, reversing a trend decline seen in the previous 18 months. The improvement is another indication that Reserve Bank cuts to interest rates are finally working to improve sentiment. At 53.9, the index is above the neutral 50 mark indicating that builders believe own business activity will improve over the next six months.

Mar-13

profitability remains poor, outlook brighter

In the March quarter the index measuring own business profitability rose slightly, from 38.0 to 41.3. The index remains well below the neutral 50 mark, so a phase of improved profitability is still some time away. In terms of builders expectations regarding future profits, the index picked up in the March quarter, from 44.1 to 50.5. The recovery in the index means that rather than any further expected deterioration in profits over the next six months, builders expect no change.
Index

Mar-03 Mar-05 Mar-07 Mar-09 Profits. Last 3 months profitability? 70 60 50 40 Mar-03 Mar-05 Sales Contracts 70 60 Index 50 40 Mar-03 Mar-05 Mar-07 Mar-09 Employment intentions - next 6 months 70 60 Index 50 40 Mar-07 Mar-09

Mar-13

poor Mar-11 Mar-13

sales continue to disappoint

The index measuring sales contracts in the past six months compared to what builders had expected, remained essentially unchanged in the March quarter, remaining firmly in the much lower category. An improvement in this key indicator is needed to ensure a recovery in business conditions and profitability.

weak employment outlook

Builders are asked about their intentions regarding the likely level of employees and subcontractors for the next six months relative to now. In the March quarter, the index rose to 43.4, but remains below the 50 mark indicating that builders still expect to cut back on employment in the period ahead.

Mar-11 higher

Mar-13

apprentices?
The apprentice index has remained at around the same level during the past three quarters. Although counterintuitive (considering the generally dismal operating conditions), around 20 per cent of respondents have indicated they will put on more apprentices, likely assisted by the Federal Governments Kickstart bonus. Three quarters of respondents say they will make no change whereas less than 10 per cent indicate that they will release some.

lower Mar-12

Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Apprentices. In next 6 months intend to? 70 put more on 60 Index 50 40 Mar-10 Mar-11 release some Mar-12

Mar-13

national survey of building and construction Display centre traffic/enquiries recover

The index for display centre traffic/enquiries rose markedly from 38.2 to 46.7 in the March quarter. Although remaining slightly below the neutral 50 mark, the index is now above the surveys average reading recorded over the past nine years (43.5). As a key forward indicator, the improvement in display centre traffic/enquiries may be another sign that the market is finally responding to lower interest rates and that the worst may soon be behind the building industry.
60 50
Index

March quarter 2013

Display centre traffic-enquiries. Past 3 months v. previous? higher

40 30 Mar-09 Mar-10 Mar-11 lower Mar-12 Mar-13

backlog of work
Builders work-in-hand dipped fractionally in the March quarter. The index appears to be trending at a lower level with high quarterly volatility. For a stronger backlog of work to come through, the industry needs improved traffic and enquiries to translate into stronger sales which, in turn, will flow into builders order books.
60 50 Index 40 30 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Work on books. Proportion with greater than 6 months of work

Input costs
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 rose to 64.2 in the March quarter (from 61.8), to be slightly higher than the average reading of the past three years. The slight drift higher in the face of weaker conditions is disappointing. The index peaked at 75 in June quarter 2008, before the G.F.C. and economic downturn saw the index fall away sharply.

80 70 Index 60 50 40

Input costs. Expected increases next 6 months v. previous period?

higher than past 6 months

Non-residential building small improvement but remains well below par

Builders with significant operations in both residential and non-residential sectors are asked a series of questions relating to the respective sectorshow would you describe current conditions and where do you believe activity is headed. In the non-residential sector, the index measuring current conditions rose to 33.7 (previous quarter reading 31.0), remaining markedly below the satisfactory 50 level. The index measuring expectations about future activity improved appreciably from 38.0 to 42.8 in the March quarter, an indication that non-residential builders are becoming less pessimistic about prospects. The reality, however, is one of poor conditions with little in the pipeline to replace building-related stimulus programs.

lower than past 6 months Mar-10 Mar-11 Mar-12 Mar-13

Mar-09

60 50
Index

How would you describe current conditions in the non-residential sector? Where is activity heading?

40 30 Mar-12 Jun-12 Sep-12 Dec-12

expected current

residential conditions becoming less dire, improvement expected

For the residential sector, the index for current conditions rose to 41.7 (from 35.9), but remains below the neutral 50 mark. In terms of where the residential sector is headed, as the chart shows, the index was unchanged in the March quarter (at 52.0), above the neutral 50 mark and indicating that builders expect residential building conditions to improve slightly over the next six months.
60 50
Index

Mar-13

How would you describe current conditions in the residential sector? Where is activity heading? expected current

40 30 Mar-12 Jun-12 Sep-12 Dec-12

Credit squeeze to cruel recovery?

Financial constraints for builders fell back in the March quarter. However 29.9 per cent of respondents were still concerned that as a constraint, availability of finance was having a major/large effect on their business. This proportion is similar to average levels recorded during the (almost) five years since the onset of the G.F.C. Builders continue to see interest rates as a negative in terms of impacting on forward orders/enquiry rates/new contracts. It would appear that for builders to switch from reporting a negative to a positive impact from interest rates on forward orders, further cuts in official interest rates are required.
Index

Mar-13

50 Availability of finance and labour as constraints 40 30 20 10 Mar-08 Mar-09 Availability of labour constraint Mar-10 Mar-11 Mar-12 Mar-13 Availability of finance constraint

national survey of building and construction Availability of labour

60 40

March quarter 2013 IR constraint

60 50 Index 40 30 Are industrial relations constraining activity? critical

Difficulty finding employees/subcontractors?

Project Managers

major difficulty Site Managers

Index

Carpenters
20

Foremen/ Supervisors
Mar-10

Bricklayers
Mar-11

Mar-09

no difficulty Mar-12 Mar-13

Mar-04

Mar-06

Mar-08

no effect Mar-10 Mar-12

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 March quarter, the degree of difficulty in finding employees/subcontractors remained at very low levels. All categories are down on levels of two years ago and there is currently little difficulty finding employees or subcontractors in the building industry. 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,in the post G.F.C. stimulus-led rebound, builders had begun to once again experience some difficulty finding certain categories of subcontractors/employees. National availability of labour
Site Manager Project Manager Foreman / Supervisor Office Staff Concretors Steel Fixers Bricklayers Tilers - Wall and Floor Carpenters Plaster Fixers Electricians Tilers - Roof Painters Labourers Building Consultants Scaffolders Sep-12 36.7 37.7 35.0 25.5 20.5 19.5 22.4 20.3 21.7 15.8 17.1 16.7 15.9 20.9 16.2 18.4 Dec-12 31.8 31.8 30.4 21.9 20.6 19.5 22.7 25.8 26.2 17.9 15.4 17.4 19.4 17.1 17.1 16.8 Mar-13 32.0 31.2 28.1 24.0 22.5 18.3 17.2 16.6 15.7 14.8 14.3 14.0 13.9 13.9 11.2 8.9

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.

spikes higher in wake of Grocon/other disputes

The index rose to 40.0 in the March 2012 quarter from 38.5 in the preceding quarter, remaining at an elevated level following the sharp rise experienced during September quarter 2012 (see chart). The spike in the index was due to a number of major industrial relations disputes related to the Grocon blockade and Childrens Hospital project in Brisbane. The index remains at its highest level since 2005.

National economic conditions

With regard to the national economy, the index measuring perceptions about current national business conditions remains well below the satisfactory mark. Indeed, at 35.4, it is currently well below levels reached during the G.F.C. and 2000/01 related downturns. However, expectations regarding the outlook for national business conditions rose sharply in the March quarter (from 37.0 to 46.9), with the index approaching the 50 or no change mark last recorded in the middle of 2011.
70 60 Index 50 40 deteriorating Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Where are national business conditions heading? improving

Note: R espondents 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.

About the survey

The survey of building and construction is a national survey of Master Builders members published on a quarterly basis. In the March quarter 2013, 509 responses were received from builders involved in all sectors of the building and construction industry: residential, renovations, commercial building, engineering construction, sub-contracting 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

. prop, n 1
i =1

ni

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.