Construction sector beats three-year drought

THE national construction sector recorded its strongest reading in almost three and a half years in September following a return to growth in the house building and apartment building sub-sectors. 

Despite the encouraging 3.9 points lift to 47.6, the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) remained shy of the critical 50 points break even mark.

In September, growth in new orders drove an expansion in  activity for the first time since April 2010.

The activity sub- index was 8.0 points higher than the previous month and at 51.9 ends forty consecutive months of decline. Despite the signs of improving demand, employment levels continued to decline in September, suggesting ongoing caution in the hiring intentions of construction businesses.

Australian Industry Group Chief Economist Julie Toth said the construction sector is closer to stabilisation than at any time since mid-2010.

"The housing and apartment sectors are driving the industry's improved performance on the back of lower interest rates and a lift in buyer sentiment.

"Meanwhile, declines in both commercial and engineering construction moderated in the month Despite these encouraging trends, it is clear that the industry continues to face a tough operating environment with impediments such as tight credit conditions and a lack of public sector building activity continuing to weigh on overall activity.

"Nevertheless, with new orders increasing for the first time since May 2010, there are grounds for cautious optimism that the current improving trend can be sustained in coming months," Ms Toth said.

Housing Industry Association Chief Economist Harley Dale said the lift was encouraging.

"The move into positive territory for the detached house and apartment sub-indices of the Australian PCI is a very encouraging development, and the rise above the 50 mark for new orders is an important outcome.

"We saw some more narrow signs earlier in the year that elements of the Australian PCI were mounting a recovery, only for these signs to subsequently fade.

We are hopeful the gains will prove more sustainable this time around and obviously a broader improvement needs to emerge over time. Fewer barriers to a construction recovery would of course be of great assistance."

Australian PCI Key Findings for September:

  • The latest seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI)  lifted 3.9 points to 47.6 (readings below 50 indicate a contraction in activity).
  • The September Australian PCI result was the highest reading for almost three and a half years.
  • Across the sub-sectors house building recorded its strongest reading since May 2010 (61.5) while apartment construction (57.7) ended 40 months of declining activity. The rate of decline in commercial construction (43.7) moderated while engineering construction (49.0) was close to stabilising in the month.
  • The new orders sub-index registered 50.8, its first rise since May 2010, although implied growth was marginal.
  • Construction employment continued to decline with the employment sub-index falling by 4.0 points to 40.6.
  • Input price inflation remained elevated despite a decline in the input costs sub-index of 2.4 points to 67.3.

Topics:  hia

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