Construction stable at end of financial year

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) fell by 3.4 points to 50.6 in June 2018, signaling stable or marginal growth in the national construction industry during the month (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Ai Group Head of Policy, Peter Burn, said: “The run of expansion enjoyed by the construction sector all but paused as the financial year drew to a close. The residential sub-sectors detracted from the industry’s momentum with apartment building continuing its orderly retreat from boom conditions and house building stable in June 2018. In both these sub-sectors, levels of activity remain reasonably high with residential construction continuing to make a substantial contribution to the broader economy. Engineering construction was broadly stable in June 2018 while commercial construction grew slightly more rapidly. Construction sector employment fell in June 2018 for the first time in over a year. Looking ahead, new orders were broadly stable overall with a sharp drop in additions to the apartment pipeline offset by modest gains in orders for new work in other sub-sectors. While not definitive, the easing of growth in new orders points at best to stable conditions in the months ahead,” Dr Burn said.

HIA Senior Economist, Shane Garrett, said: “During June 2018, house building expanded slightly while activity on the apartment side contracted for the fourth consecutive month. Apartment building activity is particularly sensitive to the restrictions on foreign investors which were tightened in recent state budgets in addition to more onerous APRA regulations with regard to interest-only loans. Such interventions risk undermining the capacity of rental markets in key growth areas – and could slow down the pace of job creation and economic expansion,” Mr Garrett said.

Australian PCI® – Key Findings for June 2018:

  • The June 2018 result of 50.6 points represents the lowest reading for the Australian PCI® in 17 months, since the industry’s overall return to growth in February 2017.
  • Australian PCI® data for June 2018 pointed to a moderation in activity growth across the construction industry (down 2.6 points to 51.3). Demand conditions were also more subdued with the new orders index drifting into mild negative territory (down 5.2 points to 49.7) following five months of expansion. Employment also contracted for the first time in 14 months (down 3.3 points to 48.2).
  • Across the four sub-sectors, commercial construction was the strongest performer (up 1.1 points to 53.7), while engineering construction expanded at a slower rate compared to May 2018 (down 4.8 points to 51.0).
  • In residential construction, apartment building remained the weakest performing sub-sector, contracting for a fourth consecutive month (up 1.6 points to 48.4) while house building activity returned near to stabilisation, down from May 2018’s solid upturn (down 8.4 points to 50.2).
  • Input price inflation retreated from May 2018’s five-month high but remained elevated in June 2018 (down 4.9 points to 77.7), while the pace of wages growth moderated from May 2018’s decade high (down 6.2 points to 60.7).
  • The selling prices sub-index decreased by 6.9 points to 53.5, suggesting that cost pressures from wages and other inputs are being passed on in part, but still not broadly given strong market competition and a low inflationary environment.

Background: The Ai Group/HIA Australian PCI® is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights. An Australian PCI® reading above 50 points indicates that construction activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

Source: Ai Group