Construction Sector Grows as Housing Boom Rolls On

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Monday, July 7th, 2014
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Continued strength in the housing sector has seen overall conditions within the Australian building and construction industry improve for the first time this year, the latest report indicates.

In June, the Australian Industry Group/Housing Industry Association Performance of Construction Index (Australian PCI®) lifted 5.1 points to come in at 51.8 – the first time thus far in 2014 the index has registered above the 50.0 level which separates improving industry conditions overall from deteriorating conditions.

House building (up 2.2 points to 56.6) led the way, whilst the commencement of a pipeline of infrastructure work – including, for example, the breaking of ground on the elevated section of Sydney’s multi-billion dollar North West Rail Link – on the east coast saw a halt to the deterioration in engineering construction conditions.

Improving data in new orders, activity and deliveries also contributed to the positive reading.

Australian Industry Group Director-Public Policy Peter Burn welcomed the result, saying the latest data provided further evidence of a rebalancing in the economy.

“The Australian construction sector closed off the financial year on a positive note by lifting back into growth following five slow months,” Burn said.

“The housing sub-sector went from strength to strength marking a tenth straight month of expansion with an accelerated pace of increase in June. The stars aligned for engineering construction with an unexpected lift in activity on the back of local government and infrastructure projects.

“However, new orders in the engineering construction sub-sector continued to fall and, with the mining construction boom now winding down, the outlook for this sub-sector is for ongoing weakness.

“In contrast, and suggesting further rebalancing within the construction sector, new orders grew at a faster pace for both housing and apartment building.”

Housing Industry Association Economist DIWA Hopkins welcomed continued strength in housing as well as the rebound in engineering, but said firmer data was needed in commercial building before any recovery in this sector to support housing could be called.

construction activity by sector

Key findings:

  • In June, the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) expanded for the first time this year – up 5.1 points to 51.8 to be above the 50 point expansion level.
  • Construction activity (up 6.1 to 53.1) expanded whilst new orders (up 6.7 to 52.4) expanded for the first time since December last year but employment (47.4 remained weak).
  • Across the sub-sectors, house building (56.6) recorded its tenth consecutive month of expansion whilst the fall in engineering (up 16.3 points to 51.1) halted and conditions in commercial building (49.8) and apartments (49.2) remained virtually unchanged.
  • In a sign higher levels of activity are starting to ease pressures on profit margins, selling prices recorded only their second monthly expansion since June 2012, albeit with input prices (73.7) also rising.
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