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Australian PCI: residential shines amid construction decline

10 June, 2014

Despite nine months of successive expansion in house building and improvements in apartment construction, the national construction industry remained in negative territory in May.

The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) recorded 46.7 in the month – a lift of 0.8 points on April's reading (readings below 50 indicate a contraction in activity).

While house building was 54.4 and apartment building increased 7.0 points to 64.9, commercial construction contracted (albeit at a slower rate) at 49.7 and engineering construction fell further – registering 34.8. There were reductions in the rate of contraction in employment (up 3.8 to 47.1) and deliveries (up 3.1 to 47.0) however, wages (59.1) and input prices (66.1) remain high.

Australian Industry Group Director - Public Policy, Peter Burn, said: "The rebalancing of the construction sector is gathering pace with a further decline in engineering construction in May partially offset by healthy expansions in house and apartment building.

"Encouragingly, new orders in these residential sub-sectors are also on the rise although the easing of residential building approvals in recent months may temper medium-term expectations.

"Commercial construction on the other hand is struggling to sustain momentum after some promising signs earlier in the year. The sector was still shy of growth in May and new orders for commercial construction work fell.

"Engineering construction continued its drop in the wake of the mining-investment boom leaving plenty of capacity for an expansion of other infrastructure activity."

Housing Industry Association Chief Economist, Harley Dale, said: "We can take some heart from the latest Australian PCI results.

"A contraction in engineering construction is hardly surprising, but commercial construction is very close to expansion mode, house building continues to expand, and apartments posted their best result in seven months.

"Further growth in residential construction activity in 2014 will be important for the Australian economy given the positive flow-through such expansion has to segments of Australia's manufacturing, supplier, and retailing sectors.

"The Australian PCI indicates we will get this outcome. It would be pleasing to see evidence emerge of growth in commercial construction and upcoming Australian PCI updates will provide a handy early news lead in this regard."

Australian PCI Key Findings for May:

  • With a rise of 0.8 points to 46.7 points, the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) remained below the 50 point expansion level.
  • The Australian PCI has now been in the red for five consecutive months.
  • The construction activity sub-index was 47.0 points which was 1.2 points below the level of the previous month in April (seasonally adjusted).
  • Across the sub-sectors:  house building continued to expand with its sub-index registering 54.5 points (an easing of just 0.2 points from April), while apartment building was 7.0 points stronger at 64.9. In contrast, engineering construction fell 4.4 points to 34.8 and commercial construction remained in contraction at 49.7.
  • The new orders sub-index was slightly weaker at 45.9 points.
  • Reflecting the highly competitive environment, selling prices remained in negative territory at 48.8 points.

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