House building approvals dropped sharply in May, but a backlog of projects associated with a federal grant scheme should cushion the retreat from record highs seen earlier in the year.
However, the construction sector is facing constraints from the rising costs of materials and difficulty finding workers.
Australian Bureau of Statistics figures showed approvals for private sector houses fell 10 per cent in May from April's record high.
But they were still more than 50 per cent stronger than monthly approvals recorded in May 2019 and 2020.
Housing Industry Australia economist Angela Lillicrap expects a pipeline of projects tied to HomeBuilder grants to keep the sector ticking along.
"Detached approvals are expected to remain elevated for several more months as approval authorities work through the remaining HomeBuilder projects," she said.
The HomeBuilder scheme officially ended in March, although the deadline to begin construction ran for another 12 months.
The construction industry reported a rise in house building, engineering construction and commercial construction in June, but activity in the apartment sector slipped.
The Australian Industry Group/Housing Industry Association performance of construction index fell 2.8 points in June to 55.5 after hitting a peak in March.
Still, an index reading above 50 points indicates the sector is expanding.
Australian Industry Group executive Peter Burn said new orders remained at very healthy levels, indicating further expansion in the months ahead.
"Employment continued to grow although its pace eased with the builders and constructors reporting increasing difficulty filling positions," he said.
The ABS also released its final retail trade data for May, posting a 0.4 per cent increase, larger than the preliminary result of a 0.1 per cent rise.
Spending was affected by the latest Victorian snap lockdown, which saw retail sales in the state decline 0.9 per cent.
Australian Retailers Association chief executive Paul Zahra said while retail sales remained on a positive trajectory, state-imposed lockdowns were having an impact on spending and confidence.
"The next two months of data is set to be a mixed bag across the states," Mr Zahra said.
ANZ senior economist Catherine Birch said lockdowns could also hamper employment gains in the next couple of months.
That's despite ANZ's job advertising series showing a further three per cent rise in June, a record 13th consecutive monthly increase.
Ms Birch said lockdowns should not derail the positive outlook for employment as long as restrictions ease as planned and states avoided extended restrictions.
"Recent history shows workers laid off or stood down during lockdowns tend to be reinstated or find new jobs quickly once restrictions lift, given the underlying strength in the labour market and overall demand," she said.
Australian Associated Press
