Despite continuing strength in home building, overall conditions throughout the construction sector in Australia slipped again last month, the latest report shows.

Published by the Australian Industry Group (Ai Group) in conjunction with Housing Industry Association (HIA), the Performance of Construction Index contracted 0.3 points to come in at 45.9 in April – the fourth consecutive month in which the index has come in below the 50.0 mark separating improving industry conditions from deteriorating conditions.

The sub-index for new orders, a likely indicator of future activity, also dropped 1.7 points to 46.6.

Leading the decline was the commercial building sector, which slipped back into contraction in April following two months of expansion, albeit with this sector experiencing a generally improving trend over the longer term (over the six months to March, for instance, the seasonally adjusted value of commercial/non-residential buildings approved for construction was up 4.2 percent compared with the previous six months) and with builder confidence in this area remaining reasonably high.

Furthermore, whilst housing (up 3.6 to 54.2) continued its momentum, engineering (down 6.3 to 39.2) was also weaker as resource construction activity continues to drop back.

Commenting on the data, Ai Group Director of Public Policy Peter Burn said that the deepening slide in civil construction was overshadowing improving home building activity and a generally improving non-residential building sector, and called on the government to boost non-mining infrastructure and address concerns about a withdrawal of public sector demand.

“While there are some promising new engineering construction projects in the resources sector such as the West Pilbara Iron Ore Project boosted by the recent announcement by Aurizon and Baosteel Resources, the pipeline of large resources and energy projects is clearly drying up,” Burn said.

Referring specifically to the residential sector, meanwhile, HIA Economist Diwa Hopkins welcomed the eighth consecutive month of housing expansion as well as the return of the apartment building sector to expansion after three consecutive months of contraction.

performance index

Key points:

  • The overall index recorded its fourth consecutive month of contraction with a drop of 0.3 points to 45.9 in April to remain below the 50 point level separating expansion from contraction.
  • House building (54.6) rose 3.8 points and apartment building (57.9) was 12.3 points stronger but commercial construction (47.5) dropped 10.8 points while engineering construction (39.2) fell 6.3 points.
  • New orders (46.3 – down 1.7) continued to contract.
  • Employment (43.3) continued to contract whilst the pace of wage growth (down 1.2 to 56.9) continued to moderate.
  • Profit margins remain under pressure as selling prices (47.3) continued to contract even as input costs (68.4) continued to rise, albeit with the rate of decline in selling prices having moderated over the past year.