Construction Index Surges to Record High

Tuesday, October 7th, 2014
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A widely regarded index measuring conditions within the construction industry in Australia has hit its highest level in nine years of records.

In September, the Australian Industry Group- Housing Industry Association Performance of Construction Index rose 4.1 points to come in at 59.1 – the highest level on record since the survey’s inception nine years ago and well above the 50.0 level separating improving conditions from deteriorating conditions.

House building (61.7), apartment building (60.5) and commercial construction (58.4) all expanded strongly whilst the pace of contraction in engineering (48.3) moderated.

Around Australia, builders in most states are benefiting from a strong recovery in home building activity as well as a more modest upturn in commercial construction.

Over the past six months alone, approvals have been granted for almost 97,000 new houses and apartments (seasonally adjusted) – implying an annualised rate of dwelling starts of almost 194,000 even though the nation has built only 180,000 homes in any given year once in more than 30 years of ABS records.

Meanwhile, a more modest recovery is taking hold in commercial building, which has now recorded three consecutive months of expansion on the Australian PCI.

Moreover, the benefits of the recovery are spreading across the sector, with large multi-residential outfits such as Meriton and Brookfield taking full advantage of a surge in apartment building activity, smaller builders gaining from a lift in detached housing and the sector’s workforce benefiting from record levels of employment – especially those in areas such as painting, plastering or general building whose primary exposure is to the residential side of the industry.

Ai Group Director – Public Policy Peter Burn welcomed the latest results, but cautioned skills shortages may be emerging in some areas of the industry.

“Continuing strength in house and apartment building and a consolidation of improved conditions in commercial construction outshone a further, modest contraction in engineering construction in September,” Burn says.

“In positive signs for the remainder of the year, new orders were strong in the three expanding sub-sectors and employment grew very solidly. Wages growth accelerated across the sector suggesting that, despite flat overall conditions in the labour market and the easing of activity in engineering construction, skill shortages may be beginning to reappear.”

Housing Industry Association Senior Economist Harley Dale said importance of the building sector recovery in the broader economy cannot be understated as weakness persists in other sectors.

Key points:

  • The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) surged 4.1 points in September to come in at 59.1 – the highest level on record since the survey’s inception nine years ago (any reading above 50.0 indicates improving construction industry conditions)
  • Across the sub-sectors, house building (61.7), apartment building (60.5) and commercial construction (58.4) continued to expand whilst the pace of contraction in engineering (48.5) moderated
  • Activity (57.1), new orders (57.2), supplier deliveries (60.9) and employment (62.8) continued to expand – the latter two doing so at their fastest pace on record in the survey’s history
  • Although selling prices (50.7) have now stabilised, rising wages (63.4) and input costs (72.9) mean profit margins remain under pressure.
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