The weaker result for April was driven by a fall in the new orders sub-index, which fell by 6.2 points to 44.6 after recording a solid improvement in the previous month. April also saw a slightly steeper decline in industry activity in April (down 0.8 points to 48.3) and renewed contractions in employment (down 3.4 points to 46.6) and deliveries from suppliers (down 1.1 points to 49.5).
By sector, house building expanded for a second month, although its rate of growth weakened from the five-month high reached in March (down 4.2 points to 51.6), and activity in the apartment building sector turned negative for the first time in three months (down 5.2 points to 49.7). Mining-related engineering construction (up 4.4 points to 45.6) and commercial construction (up 1.1 points to 48.1) continued to contract, albeit at a slower pace, reflecting the scaling back in major project activity.
Ai Group Head of Policy, Peter Burn, said: “House building was the major positive and engineering construction remained the biggest drag on the Australian construction sector in April. With the volatile apartment sub-sector slipping into negative territory and commercial building still contracting, the overall construction sector went backwards. The distinct fall in sector-wide new orders is a clear warning that activity is unlikely to rebound anytime soon with only the house building sub-sector avoiding contraction. The Reserve Bank’s further trimming of interest rates this week may stimulate activity somewhat but it is difficult to see why this additional reduction will be effective in lifting overall activity unless supported by a degree of budget stimulus next week,” Dr Burn said.
HIA Senior Economist, Shane Garrett, said: “During April, house building was the only subsector of the construction industry to see expansion and underlines the importance of residential construction in fuelling domestic demand more broadly. This week’s interest rate cut to a new all-time low of 2% means prospects for new home building look bright for the short-term at least, and will continue to offer badly-needed support to Australia’s economy.”
Australian PCI® – Key Findings for April:
- The Ai Group/HIA Australian Performance of Construction Index (Australian PCI®) slipped into contraction in April, declining by 3.1 points to 47.0.
- The new orders sub-index shed half of last month’s solid gains and fell back into negative territory, dropping 6.2 points to 44.6.
- Construction activity declined slightly more steeply this month (down 0.8 points to 48.3), while employment (down 3.4 points to 46.6) and supplier deliveries (down 0.8 points to 48.3) also returned to contraction.
- In residential construction, house building continued to expand but its rate of growth slowed (down 4.2 points to 51.6), while apartment building contracted after two months of growth (down 5.2 points to 49.7).
- Engineering construction activity continued to contract, but at a slower rate than in March (up 4.4 points to 45.6), while commercial construction recorded a sixth month in contraction (up 1.1 points to 48.1).
- Pressures on profit margins remain strong: the wages sub-index (down 4.3 points to 55.1) and input costs (down 3.4 points to 76.1) remain elevated, while the selling prices sub-index increased by 2.6 points to 52.0
- above the 50-point threshold for only the second time in the past six months. The gap between inputcosts and selling prices reflects the continuation of cost burdens and reports from respondents of a highly competitive tender pricing environment.