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Construction edges ahead in March: Australian PCI

13 April, 2015

The national construction industry moved slightly into growth territory in March, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) increasing by 6.2 points to 50.1.

The improvement in March was largely driven by a solid increase in house building activity (up 10.4 points to 55.8), which ended three months of contraction by expanding at its strongest rate since October 2014.

Apartment building activity also continued to strengthen, rising 1.8 points to 54.9 – its healthiest pace in four months. In contrast, mining-related engineering construction weakened further in March (down 1.5 points to 41.2 – a 10-month low), and commercial construction again declined, although the pace of contraction was slower than in February (up 5.2 points to 47.0).

A solid improvement was recorded in the new orders sub-index (up 12.1 points to 50.8), which returned to expansion for the first time in five months. Encouragingly, deliveries from suppliers also expanded (up 3.9 points to 50.6), while the activity sub-index contracted at its slowest rate since November 2014 (up 4.4 points to 49.1).

Ai Group Head of Influence and Policy, Peter Burn, said: "Renewed strength in house and apartment building drove the Australian construction industry back into growth territory in March.

The lift in these residential construction sub-sectors from already healthy levels more than compensated for a steeper fall in engineering construction in line with the retreat from investment in mining-related projects and further weakness in commercial construction. While new orders for residential construction look positive for the near term, the time is now ripe for higher levels of investment in commercial construction and particularly in infrastructure."

HIA Senior Economist, Shane Garrett, said: "The latest Australian PCI shows that there has been a return to growth in house building during March, with apartment building continuing to expand. Residential construction is the only area of domestic demand seeing significant growth at this time.

It is therefore important that new home building activity does not end up being stifled by the unhelpful policy settings in place, both for the sake of economic growth in the short term and Australia's housing requirements over the longer term. In this regard, the RBA's decision not to reduce interest rates this week adds to uncertainty across the economy and represents a lost opportunity."

Key findings for March

  • The Ai Group/HIA Australian Performance of Construction Index (Australian PCI) edged into expansion in March, increasing by 6.2 points to 50.1.
  • The new orders sub-index increased solidly by 12.1 points to 50.8 – its first expansion since October 2014.  This reflected a return to growth in new orders in the commercial construction sector following a sharp downturn in February, while rates of contraction moderated in all other sectors.
  • In response to the upturn in new orders, deliveries from suppliers also expanded marginally (up 3.9 points to 50.6), while contraction in the construction activity sub-index slowed (up 4.4 points to 49.1).
  • Labour market conditions stabilised in March following four months of decline, with the construction employment sub-index increasing by 2.4 points to 50.0.
  • The residential construction sub-sectors performed strongly, with house building making a solid return to growth (up 10.4 points to 55.8) while apartment building continued to strengthen (up 1.8 points to 54.9).
  • Engineering construction weakened further (down 1.5 points to 41.2) to its most subdued reading in 10 months, while commercial construction also continued to contract, if at a slower rate (up 5.2 points to 47.0).
  • Pressures on profit margins remain intense: growth in the wages sub-index (steady at 59.4) and input costs (up 0.3 points to 79.5) continued, but the selling prices sub-index fell by 2.5 points to 49.4, indicating marginal contraction. The gap reflects rising cost burdens and ongoing reports from respondents of a highly competitive tender pricing environment.

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