Screens & Feeders

Construction activity up ? but for how long?

In recent years, the construction industry has experienced a downturn; however, the latest Australian Performance of Construction Index (PCI) released by the Australian Industry Group (AiG) and Housing Industry Association (HIA) has shown an expansion in national construction for the first time in 2014.

Readings above 50 for the seasonally adjusted index generally indicate an expansion in activity, and in June, it increased by 5.1 points to 51.8. This spike was largely attributed to ongoing improvements in the house building sector, which was up 2.2 points to 56.6. However, engineering construction also jumped 16.3 points to 51.1, with the commencement of a number of east coast infrastructure projects.

“The Australian construction sector closed off the financial year on a positive note by lifting back into growth following five slow months,” AiG’s director of public policy Peter Burn said. “The housing subsector went from strength to strength, marking a tenth straight month of expansion with an accelerated pace of increase in June. The stars aligned for engineering construction with an unexpected lift in activity on the back of local government and infrastructure projects.”

Commercial construction declines
While industry growth was bolstered by an overall increase in new orders, activity and deliveries, it was partly offset by a decrease in apartment building activity to 49.2 points, and commercial construction, which fell to 49.8.

“New orders in the engineering construction subsector continued to fall and, with the mining construction boom now winding down, the outlook for this subsector is for ongoing weakness,” Burn said. “In contrast, and suggesting further rebalancing within the construction sector, new orders grew at a faster pace for both housing and apartment building.”

HIA economist Diwa Hopkins emphasised that while the latest update was certainly positive news, the construction industry was not necessarily out of the woods yet.

“The turnaround in the broader construction industry has been underscored by the residential sector but while we’ve had positive indicators from commercial and engineering construction in the latest update, we’ve yet to see the sustained improvement in these sectors that would indicate they are firmly in expansion territory,” she explained.

“The indexes of new commercial and engineering construction orders for the month of June still suggest contracting conditions, whereas new orders for the residential sector have indicated expansion. Having said that, the Federal Government recently unveiled a lot of infrastructure spending which is to occur in conjunction with State Government infrastructure plans. This has provided a backdrop for engineering construction, and hopefully we’ll see those projects take effect soon.”

The PCI is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights. Its results are based on responses from over 150 companies.

Source: Australian Industry Group, Housing Industry Association

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