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The residential and commercial construction sectors are expected to continue their expansion.
The residential and commercial construction sectors are expected to continue their expansion.
 









Construction industry hits nine-year high

The construction industry has shown the strongest rate of growth in nine years, driven by residential building and commercial construction.

In September, the Australian Performance of Construction Index (PCI) increased by 4.1 points to 59.1. Index readings above 50 points indicate an expansion in activity, with the distance from 50 indicative of the strength of the expansion.

This was the fourth consecutive month that the PCI had shown a reading above 50, which was said to signal the “strongest pace of expansion” since the first PCI report was released in August 2006.

The PCI reported that the improved activity was generally attributed to stronger levels of demand and an associated increase in new order intakes and tender opportunities, with the main challenges being a lack of public sector tenders and a decline in mining-related engineering construction activity.

New orders and activity both showed strong growth in September, leading to the highest rates of increase in employment and deliveries from suppliers since the PCI’s inception. Buyer confidence and customer inquiries for the housing and apartment building sectors were also reported to be high.

Sector breakdown
Residential building continued to be the strongest performing sector in September, showing the highest activity reading for house building in nine months. The sub-index for commercial construction also increased, while engineering construction activity contracted, although at a slower rate than in previous months.

Earlier this year, when Quarry spoke with Housing Industry Association (HIA) economist Diwa Hopkins about the June PCI, she warned that although there had been positive indicators from the commercial and engineering construction sectors, “sustained improvement” was yet to be seen.

Speaking to Quarry again, Hopkins said the positive signs for the commercial sector were now beginning to firm.

“Commercial construction is in ‘expansion territory’ – that is, the sub-index for commercial construction indicated that activity in this sector had expanded for a third consecutive month,” she explained.

However, Hopkins stated there was no evidence of a similar trend occurring in engineering construction. “This sector is still dominated by a decline in mining-related activity,” she said.

Broader industry influences
Hopkins commented that in recent months, there had been some major shifts in broader conditions that could eventually affect construction activity.

While she said the sharp drop in iron ore prices would reinforce the winding down of mining-related construction, she pointed out that the weakening of the Australian dollar could be positive for the commercial construction sector.

“The value of the Australian dollar has finally started trending lower, and in September it was down to around 91 US cents. This is a very welcome development for trade-exposed businesses, which may later seek to expand their commercial capacity off the back of increased competitiveness,” Hopkins explained.

Hopkins stated that the Australian PCI had been following a trajectory of recovery since “bottoming out” in 2012.

“The latest result – the nine-year high – is the fruit of that recovery, which has spanned around two years now,” she commented. “The new order sub-index indicates that over the near-term overall activity should continue to expand as a result of strength in residential and commercial construction.”

HIA chief economist Harley Dale said in a press release that it would be important for the broader economy to see evidence of this expansion throughout the remainder of the year and into 2015, but added, “The current elevated focus and uncertainty around the potential implementation of restrictive lending practices, and sweeping generalisations on this subject, are not helpful to that evidence emerging.”

The full Australian PCI report can be accessed via www.aigroup.com.au

The Australian PCI is a seasonally adjusted national composite index jointly issued by the Australian Industry Group and the HIA. The monthly report is based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights.

More reading
Construction activity up – but for how long?










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Friday, 20 September, 2019 5:51pm
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