Australian Construction Downturn Continues: Report

Friday, September 6th, 2013
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Despite improving signs in housing, the slowdown in the building and construction industry continues in Australia, with the latest report showing the sector registered its 39th straight month of decline in August.

According to the latest report from Australian Industry Group and Housing Industry Association, the Australian Performance of Construction Index (Australian PCI®) edged back 0.4 points last month to come in at 43.7.

The index, a widely regarded measure of overall conditions within the construction sector, has now been below the 50.0 mark separating improving conditions from deteriorating conditions for 39 consecutive months.

Leading the decline was the apartments sector, whilst commercial building continues to decline (albeit at a moderating pace) and the rate of decline in engineering has sped up.

On the positive side, however, the index shows that home building activity has virtually stabilised and is no longer in decline.

key findings chart

Because of this, Australian Industry Group Director of Public Policy Peter Burn welcomed the latest results – albeit cautioning that the recovery in housing was not sufficiently strong to take up the slack from the winding back in resource projects and persistent weakness in commercial and apartment building.

“Although the construction industry remains in a fragile state, there are early signs of a very gradual improvement in overall conditions” Burn says.

“On the positive side, the house building sector remains close to the point of stabilisation with lower interest rates starting to provide some support to levels of activity and new orders within the sector.”

But Housing Industry Association Chief Economist Harley Dale says although general improvement in the Australian PCI over recent months is a welcome development, sub-indexes for both activity and new orders remained in negative territory for all sectors.

“In other words there is a very long way to go, even though super low interest rates are providing some welcome assistance” Dale says.

The latest report follows earlier ABS data showing a 0.3 percent drop (seasonally adjusted) in the overall dollar value of construction work done throughout Australia during the June quarter.

activity by sector chart

Key points:

  • The Australian PCI® eased back 0.4 points to come in at 43.7 in August – the 39th consecutive month the index has been below the 50.0 mark separating improving conditions from deteriorating conditions.
  • Overall construction activity (43.9) was marginally stronger in August.
  • House building registered only a modest decline (49.0) while commercial construction (39.1) contracted but at a moderating pace. However, rates of decline in apartment building (37.7) and engineering construction (42.6) accelerated.
  • New orders (42.0) employment (44.6) and deliveries (45.5) continued to fall, albeit with the pace of contraction in deliveries having moderated slightly
  • Profit margins remain under pressure as input costs (69.7) rose even as selling prices (39.6) continued to fall – albeit with the both the pace of acceleration in costs and the rate of decline in prices moderating slightly.
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