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Aust PCI: Residential construction growing, engineering slowed in June

08 July, 2015

The national construction industry contracted at a steeper rate in June, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) falling 1.4 points to 46.4.

Weaker engineering activity continued to outweigh expansion in the house and apartment building sectors (readings below 50 points indicate a contraction in activity, with the distance from 50 indicating the rate of the contraction).

The industry's general weakness in June was evident in continued contractions in construction activity (down 1.3 points to 48.6), new orders (down 2.4 points to 45.6), employment (down 2.6 points to 45.5) and deliveries from suppliers (up 2.5 points to 45.4).

Of the four construction sub-sectors, apartment building was the strongest performer in June, rising 6.0 points to 53.0, while house building also returned to expansion (up 3.4 points to 51.7).

Engineering construction completed a full year in contraction (down 3.3 points to 45.2) amid weaker mining-related projects and major infrastructure construction activity nationally. Commercial construction also remained in negative territory for an eighth consecutive month (down 0.3 points to 48.9).

Ai Group Head of Policy, Peter Burn, said, "the Australian PCI for June highlights the continuing trend of falling mining-related engineering construction overshadowing growth in the residential sector.

"Despite some large LNG projects that are yet to be completed, the shrinking of the resources and energy investment pipeline is a clear constraint on the industry and the economy as a whole.

"Commercial construction is also struggling amid continuing subdued approvals and commencements. The results reinforce the need for greater consistency and reliability in the development of pipelines of major infrastructure works across the country."

HIA Chief Economist, Harley Dale, said, "the latest Australian PCI results confirm that residential construction is doing the heavy lifting for the domestic Australian economy.

"Revving up the infrastructure investment engine is crucial, as we have been highlighting for a considerable time now, but think where the economy would be without the substantial impetus provided by healthy new home building activity.

"The housing components of the Australian PCI are consistent with that economic support continuing, but there is urgency now to fostering a broader recovery - Federal and State governments need to respond accordingly."

Australian PCI - Key findings for June:

  • The Ai Group/HIA Australian Performance of Construction Index (Australian PCI) continued to contract in June, falling 1.4 points to 46.4.
  • The sub-indexes for new orders (down 2.4 points to 45.6), employment (down 2.6 points to 45.5), and construction activity (down 1.3 points to 48.6) all contracted at steeper rates in June.
  • The deliveries from suppliers sub-index also contracted for the sixth time in seven months, if at a slightly slower rate (up 2.5 points to 45.4), consistent with the deterioration in aggregate activity and orders.
  • In residential construction, apartment building activity lifted solidly to a three-month high in June (up 6.0 points to 53.0), while house building activity also expanded in line with the sub-sector's recent strength in new orders (up 3.4 points to 51.7).
  • Engineering construction activity continued to contract, and at a steeper rate than in May (down 3.3 points to 45.2), while commercial construction recorded an eighth month in contraction (down 0.3 points to 48.9).
  • Growth in the wages sub-index continued in June (up 2.0 points to 56.5), while input costs also picked up further (up 5.2 points to 73.4). A wide gap remains between the two pricing series, with the selling prices sub-index decreasing by 1.2 points to 48.3; pressures on profit margins remain strong.

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