Construction index shows industry still in contraction

THE national construction industry has remained in contraction for a second month, with the AIG/HIA Australian Performance of Construction Index (Australian PCI) slipping marginally in January by 0.5 points to 46.3. 

Readings below 50 indicate contraction in activity, the distance from 50 indicating the strength of the decrease).

Ai Group Head of Policy, Peter Burn, said: "The further fall in construction in January is concerning both for the industry itself and for the broader economy."

"Over recent months the construction sector became increasingly dependent on the continuing strength of residential construction and particularly apartment building. While house building maintained momentum in January, the apartment sector dropped dramatically joining commercial and engineering construction in negative territory.

"The drop in apartment activity, together with the decline in new orders across all four construction sub-sectors, suggests that construction may not play the leading role in rebalancing the broader economy that it played in 2015.

"This emphasises once again the importance of developing new sources of growth across the economy," Dr Burn said.

HIA Economist, Diwa Hopkins, said: "Today's PCI results are consistent with a range of indicators suggesting that new home construction - apartment construction in particular - will pull back from the record levels experienced last year. The Australian PCI results also highlight the challenge for policy makers ahead.

"That is, in early 2016 conditions in commercial and engineering construction look set to remain weak in an environment of declining residential construction activity. We need to see evidence of a recovery in non-residential construction but as yet, the Australian PCI® suggests that the weakness of 2015 will persist into early 2016," Ms Hopkins said.   

Australian PCI - Key Findings for January:

  • The Ai Group/HIA Australian Performance of Construction Index (Australian PCI®) slipped marginally to 46.3 points in January.
  • Apartment building returned to negative territory after six months of expansion (down 7.9 points to 46.4), while house building recorded a second month of growth (down 0.3 points to 52.3).
  • Commercial construction was the weakest sub-sector in January, falling 3.5 points to 36.5, its sharpest rate of contraction since July 2013. Engineering construction also remained subdued (up 0.3 points to 41.5).
  • The construction activity (down 0.2 points to 44.2) and new orders (down 0.8 points to 43.5) sub-indexes recorded slightly steeper declines in January, while supplier deliveries ended two months of growth (down 3.4 points to 47.7).
  • Construction employment edged higher into expansion in January (up 1.3 points to 51.4).
  • Growth in the wages sub-index continued in January, but at a slower rate (down 2.6 points to 58.5), while the pace of growth in input costs remained elevated (up 2.1 points to 70.8).
  • The selling prices sub-index edged above the 50-point no-change threshold for the first time in nine months (up 2.3 points to 50.6), but pressures on profit margins remain strong.

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