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Construction industry lifts performance after unsteady start to the year


The joint Australian Industry Group (Ai Group)/Housing Industry of Australia (HIA) Performance of Construction Index (PCI) has reported an ease to the industry’s decline in construction activity, after jumping by 1.4 points to 42.7 in February.

Nonetheless, February marked the 18th consecutive month of contraction in the PCI.

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. A PCI reading above 50 points indicates that construction activity is generally expanding; if it is below 50, it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

The index found house building was the best performing sub-sector within the construction industry, reaching its highest numbers in almost two years (up 1.6 points to 55). This marked a slow but steady recovery from the December 2019 PCI, which marked the weakest construction performance in more than six years.

“A further lift in the house building sector during February partially offset sluggish conditions across the rest of the construction sector,” said Ai’s Group head of policy Peter Burn. “Construction sector employment declined again as builders struggled in the face of lower selling prices, rising wage and non-wage costs and a further drop in new orders.

“The return of growth in the house building sector is very welcome in these generally adverse conditions and the further rise in new orders in this part of the market suggests there are likely to be additional gains in the months ahead.”

Despite an increase to the house building sector, apartment building has remained negative with a 0.4-point drop to the sector.

According to HIA economist Angela Lillicrap, the contraction of the apartment market is the aftershock of apartment completions reaching record numbers.

“The apartment market continues to contract after a record number of completions. Apartment commencements are likely to pause while those that are currently under construction are completed and occupied,” she said.

“The ongoing growth in house prices will continue to boost confidence in the housing market. This, along with the current low interest rate environment, will support further growth in new home building.”

Commercial construction found itself in negative territory for the 19th straight month after being dealt another blow in February (down 1.4 months to 37.5). Engineering construction, which encompasses government-funded road, transport and rail projects, was up 2.5 points (to 40.5) but still lagged behind the PCI reading of 50 for the ninth consecutive month.

Although the input prices index eased by 4.9 to 68.2 points, the selling prices index recorded a further fall by 2.8 points (to 43). The gap between the prices series indicates that cost pressures are still high and profit margins tight within the industry, with strong competition between builders. Growth in wages was also high, despite a drop of 5.1 points (to 53.6).

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