Construction Sector Records Another Expansion

Friday, December 6th, 2013
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Having recorded its first expansion in more than three years last month, the building and construction industry in Australia recorded even stronger gains last month, with a key index soaring to its highest level in more than three and a half year highs.

In November, the Performance of Construction Index rose 0.8 points to come in at 55.2 – well above the 50.0 level which separates improving industry conditions from deteriorating conditions and higher than at any other level since April 2010.

All sectors recorded an expansion in activity, albeit with the pace of that expansion contracting in houses and apartments.

Australian Industry Group Executive Director of Public Policy Peter Burn welcomed the result but cautioned the expansion was coming off a low base.

“The construction sector extended its expansion in November adding further to the accumulation of momentum evident in recent months” Burn says. “The fact that growth was reported in each of the four sub-sectors is particularly encouraging and adds to the signs that the long-awaited re-balancing of the domestic economy may be getting underway on the back of low interest rates and a lift in business and household confidence.”

“However, given the extent of the slump in residential and commercial construction over more than three years, the expansions recorded in October and November are from a low base and we are still some months from a convincing recovery.”

Housing Industry Association Chief Economist said it was ‘great’ to see a second consecutive month of expansion in the index and noted results for house building and apartments signalled further short term growth in the residential sector but cautioned a return to strong levels of activity required further policy reform said tight credit conditions remained a roadblock to a construction-led recovery in the broader economy.


Key points:

  • The overall Australian PCI® rose 0.8 points to come in at 55.2 – the highest level on record since April 2010 and the second consecutive month the index has been above the 50.0 mark which separates expanding activity from contracting activity
  • New orders (58.5) recorded their highest level of expansion in eight years whilst an upturn in deliveries from suppliers (57.9) added further momentum to the overall reading.
  • Construction activity was strong at 54.6.
  • Across the sub-sectors, house building (62.0), apartments (57.9), commercial construction (52.9) and engineering construction (52.5) all recorded expansions.
  • Whilst profit margin pressure remains as input costs (71.3) continued to rise even as selling prices (44.6) continued to fall, the rate of decline in selling prices has eased compared with previous months, whilst an improvement in capacity utilisation may signal stronger pricing conditions ahead.
  • Employment (50.3) did increase during the month but the pace of that increase was marginal, suggesting the recent improvement in industry conditions is supporting a stabilisation of employment levels but is yet to translate into job creation.
  • Businesses generally noted that market conditions were strengthening in response to higher levels of demand. This was being reflected in increased tender opportunities with respondents also indicating further success in the securing of contracts.
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