After nine months of being stable or in a state of contraction, the construction industry finally started showing signs of growth in August, according to the Australian Performance of Construction Index (PCI). The latest PCI report showed a continuation of this trend.
Despite a slight decrease of 1.9 points indicating a slower rate of growth from the previous month, the September 2015 index remained above the 50-point level that separates expansion from contraction at 51.9.
“Strong residential building activity held the overall construction sector above water in September, overshadowing a fall in commercial construction and further contraction in the engineering construction sub-sector,” Australian Industry Group (Ai Group) head of policy Peter Burn said.
House building achieved an 11-month high in its rate of expansion, lifting 2.4 points to 56.8. Apartment building also increased 4.5 points to 63.2, representing the sub-sector’s strongest expansion rate in the past 13 months.
Following a marked 9.4-point leap into expansion territory in August, commercial construction fell back into a state of contraction, dropping 6.5 points to 48.1. Engineering construction also plummeted 9.3 points to 36.6.
Rebalancing the economy
“The expectation of further falls in mining-related construction is reflected in the drop in new orders for engineering construction work,” Burn stated. “Encouragingly, there were rises in new orders for house, apartment and commercial building in September.
“This further momentum in the non-mining construction sub-sectors is an important element in the task of rebalancing the economy as mining investment and commodity prices return to more normal levels.”
Housing Industry Association (HIA) economist Diwa Hopkins described residential construction activity as the “cornerstone” of the broader construction industry, predicting that it would retain this role into the first half of 2016, if not longer. Her optimism, however, remained cautious.
“There are some tentative signs of improvement emerging from the commercial sub-sector of construction, but these are yet to be sustained – the August rise in the commercial construction activity sub-index took a tumble in September,” she noted. “Nevertheless, new orders for this segment of the market are rising, which suggests a recovery may emerge in the new year.”
The full Australian PCI report for September 2015 is available at www.aigroup.com.au
The Australian PCI is a seasonally adjusted national composite index jointly issued by the Ai Group and the HIA. The monthly report is based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights.
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