Australian Construction Downturn Eases in July

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Thursday, August 8th, 2013
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The building and construction downturn in Australia has eased, according to a widely respected measurement of overall conditions across the residential, commercial and civil construction sectors.

The Performance of Construction Index (Australian PCI®) rose 4.6 points in July to come in at 44.1 – still well below the 50.0 measure which separates improving conditions from deteriorating conditions but indicating that the pace at which overall industry conditions are deteriorating has eased.

Driving the latest results were less pronounced falls in new orders, activity and employment, with particular moderation in activity decline being observed in residential building and engineering.

Notably, new orders contracted at the slowest pace on record in two and a half years.

Still, whilst industry commentators welcomed the latest easing in conditions along with the latest reductions in interest rates, Australian Industry Group Director of Public Policy Peter Burn says the industry continues to face tough times amid tight credit conditions, a lack of public sector building activity and subdued investor sentiment.

“To date there is only mixed evidence of a pick-up in the construction sub-sectors that will be required to offset the fading of mining-related construction activity” Burn says. “While the house building sub-sector approached an expansion in activity, apartment-building slowed at a steeper pace and commercial construction was also slower in July. New orders continue to contract across the industry although the pace of contraction eased noticeably in the house-building and engineering construction sub-sectors.”

Housing Industry Association Chief Economist Harley Dale welcomed the ‘improving profile’ of detached housing and engineering construction but says steeper declines in commercial and apartment building are disappointing and the 38th consecutive month in industry contraction as indicated by the data shows that the transition in the Australian economy away from the resources sector is far from smooth.

key findings chart

Key points:

  • The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) was up by 4.6 points to 44.1 in July, remaining below the 50 point mark separating expansion from contraction for the 38th consecutive month.
  • Overall construction activity was up 2.2 points to 43.6 in July, indicating a further moderation in activity.
  • The house building activity sub-index rose by 7.0 points to 49.3, the highest reading in five months.
  • New orders (42.9) (seasonally adjusted) contracted, but did so at the slowest pace in two and a half years.
  • Employment continued to contract, but at a slower rate, up 5.9 points to 46.2 in July.
  • There were encouraging reports from house builders indicating an improvement in customer enquiries and a pick-up in new work in July.
  • Selling prices (33.5) continue to fall as input costs (71.2) continue to rise, indication ongoing pressure on industry profit margins.
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