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A big fall in engineering construction and apartment building has pushed the entire construction sector into contraction and a 20-month low in October.

The Ai Group and Housing Industry Association Performance of Construction Index (PCI) fell 5.5 points to 45.9 points in the month, from 51.8 points in August.

A level below 50 points indicates activity in the sector is winding down.

The biggest mover was engineering, which slumped 13.7 points to 44.3 points in October.

Ai Group head of policy Peter Burne said the construction sector slipped backwards in October with each of the four sub-sectors recording a decrease in activity for the month.

"The decline of engineering construction into negative territory reflects the vulnerability of the sub-sector to the concentration of activity in transport infrastructure in the southeastern corner of the country," he said in a statement.

While the falls in residential building activity are coming from high levels, further easing is indicated by more falls in new orders in October, he said.

HIA senior economist Shane Garrett said the results provided further evidence that apartment building had peaked, and that the high-density sector was likely to see a considerable reduction in activity over the next few years.

"We expect that the reduction in house building over the coming years will be quite measured compared with the apartment segment," Mr Garrett said.

 
  • When looking at this, it should be remembered that the numbers are statistically volatile and do bounce around a bit and it is important not to overreact to one month of data. Also, I do wonder about some of the results of this particular index. For instance, it shows that selling prices have been falling for most of the past six years. Other sources, however, such as WT Partnership's quarterly reveiw of construction conditions, show that tender prices across major projects have been slowly rising for the past couple of years. Indeed, the PCI index has shown input costs and wages rising throughout the past few years and a fall in selling prices during almost every month. If that were really happening, however, we would be seeing bankruptcies and companies leaving the industry en-masse which we are not seeing.)

    That aside, the fact that new orders have been falling in every sector according to this report is concerning. Perhaps the industry should brace itself for slightly tighter times ahead.

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