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March 8, 2016

Construction industry still contracting

The national construction industry has remained in contraction for a third month, with the Australian Industry Group/Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI®) slipping in February by 0.2 points to 46.1*.

“The national construction sector continued to slide in February, marked by a sharp decline in the house building sub-sector,” Ai Group head of policy Peter Burn says.

“The fall in house building was offset in part by a rebound in the apartment sub-sector and a lift in commercial construction from the contractionary conditions it has experienced for the past six months.

“Engineering construction maintained a downward trajectory although the pace of fall eased in the month,” he says.

Looking ahead, Burns says the fall in new orders – for the fourth consecutive month – points to further contraction for the construction industry as a whole.

“Only the volatile apartment sub-sector saw an increase in orders in February. With housing approvals slipping in recent months, unless we see a period of sustained growth in commercial construction and a pick-up in infrastructure investment, it’s unlikely the construction industry will be a source of growth for the economy or jobs in coming months.”

HIA chief economist Harley Dale says that while the new residential construction sector will maintain “very healthy” levels of activity this year, it won’t generate further growth.

“The overall trajectory for the housing measures of the Australian PCI® is consistent with this outlook,” he explains.

“The sharp decline in house building in February is a concern and we hope to see a decent recovery in March.

“Detached house building has been quite strong in some markets this cycle, but certainly hasn’t satisfied the levels of underlying demand given insufficient availability of shovel-ready land and the excessive user-pays charges for residential infrastructure.”

Key findings for February: 

• A solid upturn in apartment building activity (up 9.9 points to 56.3) offset the downturn recorded in January, but house building slipped sharply to its lowest level since January 2015 (down 9.2 points to 43.1).
• Commercial construction showed strong improvement from its 30-month low in January, returning to expansion for the first time in six months (up 15.4 points to 51.9). Engineering construction contracted for a 20th month but at a slower rate (up 5.0 points to 46.5).
• The new orders sub-index recorded a steeper decline in February (down 2.3 points to 41.2), while construction employment turned down after six months of growth (down 5.1 points to 46.3).
• Growth in the wages sub-index continued in February (up 2.3 points to 60.8), while growth in input costs remained elevated but slowed its pace (down 6.3 points to 64.5).
• After edging above the 50-point no-change threshold for the first time in nine months in January, the selling prices sub-index slipped back to a 29-month low in February (down 8.5 points to 42.1), reflecting rising competition among builders seeking work in a tight market.

Table of PCI

You can read the full report here:  http://www.aigroup.com.au/

* Readings below 50 indicate contraction in activity, the distance from 50 indicating the strength of the decrease

About Angela Young

Angela Young is the Associate Editor of Australian Property Investor magazine.