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Construction bounces back in February: Australian PCI®

09 March, 2017

Following four months of decline, the Ai Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) lifted by 5.4 points to 53.1 in February.

It was the highest Australian PCI®reading since mid-2016 (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

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Ai Group Head of Policy, Peter Burn, said: "The construction sector bounced into expansion in February led by a very strong lift in house building and backed by gains in commercial and engineering construction. The apartment building sub-sector remained in the red even though levels of activity remain high by historical standards. There was a healthy lift in new orders for house builders with some additional expansion experienced among engineering constructors. These gains easily offset a further decline in new orders in the apartment sub-sector and underwrote a solid lift in overall employment in the industry as businesses increased their capacity," Dr Burn said.

HIA Chief Economist, Harley Dale, said: "This February update for the Australian PCI® proves there is still life left in Australia’s new home building sectors. The gem in today’s result – for manufacturers, suppliers, sub-contractors, builders and the many other market participants – is the relatively strong showing for detached housing. The February result is also a healthy update for the construction industry and the broader Australian economy. The latest Australian PCI® supports our view that new home construction activity will hold up very well in the short term, after which there will be a marked decline in medium/high density construction relative to detached housing," Dr Dale said.

Australian PCI® – Key Findings for February:

  • The activity sub-index of the Australian PCI® improved solidly in February, rising 7.4 points to 54.7 – its highest rate in 2 ½-years. Employment also expanded for the first time in four months (up 6.2 points to 53.5) and new orders returned to growth after six months of contraction (up 3.6 points to 51.2).  
  • While apartment building activity contracted for a sixth consecutive month (down 0.4 points to 46.1), house building recorded a strong resurgence (up 10.7 points to 60.9 – its highest rate since June 2016).
  • Stronger conditions were also evident in commercial (up 6.1 points to 53.6) and engineering construction (up 11.1 points to 53.9), with both sub-sectors lifting into positive territory after declines of five and four months respectively.
  • Pressure from rising wages (up 2.8 points to 63.0) and input prices (up 10.5 points to 76.1) is partially being passed on, with the selling prices sub-index increasing slightly by 0.7 points to 56.0, but profit margins remain under pressure amid a highly competitive tender pricing environment.

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