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Australian PCI®: Construction bounces back in June

14 July, 2016

The national construction industry returned to growth in June, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increasing 6.5 points to 53.2.

This is the highest rate of expansion in 10 months (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Ai Group Head of Policy, Peter Burn, said: “The construction sector hit a sweet spot in June with the bounce in theAustralian PCI® driven by growth across all of the sub-sectors and with solid gains in activity, employment and new orders. The residential sub-sectors of house and apartment building were the standout performers both in current activity and in new orders, suggesting they are on track to continue their expansionary run over the near term. While making positive contributions to current activity, the commercial and engineering construction sub-sectors both recorded a drop in new orders in June, providing less cause for optimism about the first quarter of the new financial year,” Dr Burn said.

HIA Chief Economist, Harley Dale, said: “We have seen a broad-based recovery in the Australian PCI® in June 2016. The results serve as a reminder that new residential construction remains the powerhouse of the domestic Australian economy. At the same time, non-residential construction has some spark to it, but the breadth of recovery is still proving elusive. The latest Australian PCI® update highlights the importance of the construction industry to the Australian economy and the results are consistent with our outlook for both residential and non-residential construction activity,” Dr Dale said.

Australian PCI® – Key Findings for June:

  • The Australian PCI®’s return to expansion in June was driven by a solid upturn in the new orders sub-index (up 9.2 points to 52.1), which returned to growth for the first time in eight months.
  • The construction activity sub-index also expanded solidly (up 6.2 points to 53.9) after falls in four of the past six months, while employment also lifted (up 4.9 points to 53.9).
  • All four sub-sectors in the Australian PCI® expanded in June, led by house building (up 4.5 points to 62.1) which recorded its highest rate of expansion in 30 months. Apartment building recovered strongly (up 13.7 points to 55.2) after two months in contraction.
  • Engineering construction expanded for the second time in three months, albeit marginally (up 7.3 points to 50.7), while commercial construction also posted a stronger performance in June (up 8.6 points to 53.3).
  • Growth in the wages sub-index continued in May (up 5.7 points to 63.1), while the input prices sub-index remained elevated (down 0.3 points to 67.5).
  • The selling prices sub-index increased by 1.3 points to 51.3, indicating that the pressures on input prices are now being passed on (if only marginally), despite strong market competition.   

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