Infrastructure Industry Index

Analysis for Q1 2024 Our construction index saw a slight increase of 2.6% from Q1 2023 - Q1 2024 which is a significant reduction on the 7% a year prior. This is likely due to supply vs demand beginning to find an equilibrium after the disruptions over previous years. This softening in the rise in costs will be welcome news for the construction industry.

The maintenance index also saw an increase of 2.9% which is again, a significant reduction on the 6.1% for the previous year. This echoes the construction index and in this case the cooling of plant and material costs have been the dominant factors in driving the reduction.

The new National government is now well into their first year and their priorities have been made clear (especially through their recent budget announcement). Businesses should see an increase in approved infrastructure projects over the next five years ($68b forecasted) which would likely see a further increase in demand and therefore lifting our infrastructure index percentage.

Labour continues to see an increase of around 4% within both construction and infrastructure. Noting the government crackdown on “wasteful spending”, New Zealand may see an increase in unemployment leading to a decrease in our labour index. However, the current cost of living crisis continues to challenge that rhetoric and businesses are continuously being forced to keep their wages rising to help employees through this high inflationary economy.

The Tradies Lunchbox increased again solidifying its price in the double digits, now sitting at $10.08 for the succulent meal. With inflation beginning to slow, could we see a more affordable lunchtime meal come next Quater? 

The annual increase in the cost of labour has begun to reduce as expected, falling from its high of 4.4% in Q4 2022 to just over 3% in Q3 2024 – This is most likely a reaction to the loosening labour market. As NZ businesses continue their restructuring processes and the unemployment rate rises, businesses have increased leverage when negotiating pay packages. Additionally, as work in the sector becomes increasingly scarce, labour rates for the infrastructure industry are beginning to take a hit.

With inflation now within the Reserve Bank of NZ’s (RBNZ) target band of 1-3%, we have begun to see a reduction in the OCR. This is welcome news to business owners and investors who have a stake within the infrastructure sector. As the OCR falls and interest rates follow, business confidence should increase and investment in the industry should see some uplift.

Since it’s sharp decline in Q2 2022 from circa 10%, our Construction index has remained relatively flat at around a 1.6% – 2.7% increase with Q3 2024 showing a rise of just 1.3%. A large contributor to this is the price of plant and materials that have followed a similar trend both nationally and internationally.

Fiscal spending has continued to decline, and the recent release of the government's financial reports underscores the challenging trajectory ahead for New Zealand's economy. This is likely to result in the sustained restraint on public expenditure and also raises the prospect for further rounds of redundancies. While this is likely to present challenges for the construction and infrastructure sectors in the short term, it is anticipated to accelerate the nation's recovery, positioning the economy for growth and stability in the medium to long term.

Since 2021, the annualised percentage change in our Tradies Lunchbox Index has almost mirrored the trajectory of our custom-weighted Construction Index, albeit with a slight lag. This pattern suggests that the Construction/infrastructure sector exhibits a more immediate responsiveness to economic activity especially following a pandemic. As the residual effects of COVID19 continue to subside, both indices have begun to converge, reflecting similar (reduced) growth rates, indicating that both sectors are relatively stable for now.