Building work on the increase: ABS

Construction added to growth in the September quarter, driven by a jump in demand from the public sector as private sector activity fell back.

The value of construction work done rose by 2.2 per cent in the September quarter and by 6.9 per cent from a year before in seasonally adjusted, chain volume (real) terms, the Australian Bureau of Statistics (ABS) said on Wednesday.

Within the total, construction for the private sector was down by 3.0 per cent in the quarter and by 2.6 per cent through the year.

The weakest spot was in private sector non-residential building, where activity fell by 7.8 per cent in the quarter and 20.4 per cent from a year earlier.

Private sector residential building work rose by 2.4 per cent in the quarter but was still 5.8 per cent down from a year earlier.

Engineering construction activity (pipelines, mines, bridges and the like) 5.1 per cent in the quarter but was still 11.5 per cent up from a year before.

It was a different story for construction done on behalf of the public sector, which rose by 17.6 per cent in the quarter and by 39.7 per cent over the four-quarter span.

Both the quarterly and annual percentage rises in the public sector category were the biggest by a wide margin in 23 years of available data.

The result was clearly affected by the government's fiscal stimulus package that led to a surge in non-residential building approvals over the middle months of the year.

The construction activity covered by this report makes up about one eighth of gross domestic product (GDP), so the reported overall increase implies a contribution to growth in the September quarter of about 0.3 percentage points.

Because it is dominated by public sector demand, the boost to growth does not imply any more incentive for the Reserve Bank of Australia (RBA) to jack interest rates up further.

On the other hand, the weakness in private sector activity will not encourage the RBA to stay its hand - the dip in acclivity reflects demand conditions in the construction sector before mid-year, when the financial crisis was having its most severe impact on confidence.

Since then, business and consumer confidence has improved markedly.

The RBA's board is due to hold its monthly monetary policy meeting on December 1 and the ABS is scheduled to release the September quarter national accounts, which include the estimates for GDP, on December 16.