Conditions within the Australian construction industry dipped slightly in March as weak activity in apartment building and deteriorating conditions in civil construction offset continued strength in housing and increasing momentum in commercial building, the latest report suggests.

Despite rising 2.0 points during the month, the Australian Industry Group (Ai Group)/Housing Industry Association (HIA) Performance of Construction Index (Australian PCI®) came in slightly below the 50.0 mark separating improving conditions overall from deteriorating conditions in March at 46.2, meaning that overall conditions within the industry deteriorated slightly during the month albeit with the pace of contraction having eased since February.

Leading the way were the multi-residential and civil construction sectors, weaker output in which more than offset continued momentum in housing and a second consecutive month of gains in commercial building – a sector in which Ai Group Executive Director of Public Policy last month told Sourceable had shown increased signs of momentum since a bottoming out in mid-2012.

PCI - March

Commenting on this month’s result, Burn welcomed the continued improvement in commercial but warned the rebalancing of the building sector as resource investment slows has ‘a considerable way to go’ and called for greater levels of investment in non-mining infrastructure investment.

“As is the case with the broader economy, the rebalancing of the construction sector as mining-related activity slows still has a considerable way to go” Burn said.

“The welcome development in the past couple of months comes from improvements in activity and new orders in commercial construction. If this can continue and recent momentum is maintained in the residential construction sectors, attention can turn to the remaining missing link – greater investment in non-mining related engineering construction.

“In this regard, recent discussions between the states and the commonwealth government are encouraging and the scene is set for a major focus on new infrastructure investment.”

HIA Chief Economist Harley Dale said the latest readings were disappointing notwithstanding continued strength in detached housing, and reiterated calls for the removal of ‘excessive and inefficient’ taxes on new housing.

PCI - March

Key points:

  • The Australian PCI® increased 2.0 points in March to 46.2 – slightly below the 50.0 mark separating improving conditions from deteriorating conditions.
  • In terms of sectors, commercial (56.5 – up 3.4 points) was the top performer whilst detached housing (50.8 – down 1.4 points) continues to perform solidly; apartment building (45.6 – down 1.0) and engineering (45.5 – up 5.8), however, provided a drag on the sector’s overall performance.
  • Despite rising 8.8 points, new orders (48.8) continued to contract, albeit registering the mildest rate of contraction thus far this year.
  • The index for employment (42.7 – down 3.3 points) remained in negative territory, although these readings are contradicted by recent ABS data showing rising employment and job vacancies. Wages (58.4) continued to grow at a steady pace.
  • Notwithstanding improving residential and commercial conditions, profit margins remain under intense pressure as selling prices (43.2 – down 1.4) are still falling even as input costs (72.4 – up 6.0) and wages (see above) continue to rise.