It has been a long hot summer. We’ve revelled in the bumper harvests and we’ve put precious little aside for the storms ahead.
But construction figures released yesterday by the Australian Bureau of Statistics – the first real building blocks of December quarter GDP figures due next week – suggest the Autumn days of the mining investment boom are here.
The value of total construction work done in the December quarter fell 0.1 per cent compared to the September quarter, to $51.9 billion. This was still 11.9 per cent higher than the previous December quarter, but economists were caught short, tipping quarterly growth to exceed one per cent.
The real surprise was a sharp 2.5 per cent drop in "private engineering construction”. The bureau does not split these figures up by sector, but it’s safe to assume this was the result of an unwinding in mining sector expansion plans. Government sector engineering construction actually rose.
The biggest drops were seen in Western Australia and Queensland, which together have accounted for more than one half of total construction activity recently.
Just as one swallow does not make a summer, one bad construction report does not mean winter is here yet.
But make no mistake, winter IS coming.
Don’t imagine this is any surprise to the Reserve Bank.
The bank has been warning since last year that the peak of the mining investment boom is nigh. Reserve Bank assistant governor economic Christopher Kent was very clear, talking at a Treasury organised conference on the rise of Asia at the Canberra Hilton last September, that of the commodity boom would come "over the next year or so”.
Board minutes since then have marked how the peak of the mining investment boom may happen sooner and lower than previously expected.
We can’t say we weren’t warned.
And it’s not like the Reserve Bank has been sitting idly by.
The foreshadowed end of the mining investment boom is a major part of why the Reserve has dropped the cash rate by 1.75 percentage points over the past year and a bit.
Fully aware that the Australia’s biggest economic engine – mining – was about to stop firing, or at least step down a gear, the bank has been dropping borrowing rates to stimulate activity in other parts of the economy.
The bank has essentially hit 'thaw' on parts of the economy – like retail and housing construction – that it had previously cryogenically frozen with high interest rates to make way for the boom without inflation.
Continued growth from here will depend crucially on recovery in these other sectors.
And now we wait for signs of life.
And they are flickering.
The most telling part of yesterday’s construction report was not the weakness in mining investment, but rather the green shoots of life in the residential construction sector.
The value of residential construction work done rose 1.7 per cent in the December quarter to be up a slim, but positive, 0.8 per cent over the year. The value of new home building and alterations and additions to existing dwellings may not exactly be running away, but a return to growth was a necessary precondition for further recovery.
For the bank, this would be a very encouraging sign indeed.
But it’s early days yet.
Today’s capital expenditure figures will give further glimpses into the timing of the end of the mining investment boom. Economists are expecting a 1 per cent rise in capital expenditure in the final three months of last year.
More crucially, we get an update on the resilience of mining sector investment plans in the face of last year’s iron ore price tumble.
We know that big miners’ nerves were tested. BHP Billiton shelved its Olympic Dam expansion plans. Fortescue Metals Group laid off a thousand workers. LNG remains a bright spot, but the rapid pace of mining sector investment, in ports, rail and mines, is slowing.
But there is little cause for panic.
This has got to be one of the most well telegraphed ends to a mining boom that we’ve had. Usually they end in messy inflationary bursts.
In some ways, the sharp plunge and recovery in the iron ore price has acted as an early detection system for the end of the boom, with a short, sharp shock to growth prospects allowing us to get our house in order. Prices have since recovered somewhat.
And yet, winter is coming.
As our politicians in Canberra play their game of thrones, it’s clear any victor will govern in leaner times.
Jessica Irvine is the National Economics Editor of News Limited’s metropolitan daily newspapers, including The Daily Telegraph, The Herald Sun, The Courier Mail and The Adelaide Advertiser.