The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.4 points to 52.0 in July 2018, signaling industry-wide growth for an 18th consecutive 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: “A stronger showing from the engineering construction sub-sector outweighed a sharp fall in apartment building activity and broadly stable levels of activity in both house building and commercial construction in July 2018. Both employment and new orders lifted modestly back into positive territory at the aggregate level although orders in the apartment sub-sector fell steeply. Input prices rose again continuing the upwards trend evident over the past year and wages growth also was stronger in July 2018. To date there has been a very orderly retreat from historically high levels of apartment-related activity. The overall resilience of the construction sector will be tested if the lower levels of activity and new orders for the apartment sub-sector continue into the months ahead,” Dr Burn said.
HIA Senior Economist, Geordan Murray, said: “The Australian PCI® continues to identify the cyclical change in the sectors that are driving growth in construction. While there is still a lot of construction activity occurring, the apartment pipeline is not being replenished with new projects at the same rate that projects are being completed. Expansion in the amount of work on engineering construction projects is making up for the easing activity in the apartment sector. On balance, construction activity continues to grow, albeit at a more subdued rate than we were seeing in 2017,” Mr Murray said.
Australian PCI® – Key Findings for July 2018:
- Australian PCI® data for July 2018 pointed to a marginal improvement in the new orders sub-index, which lifted into mild positive territory (up 0.6 points to 50.3) after contracting for the first time in six months in June 2018. Deliveries from suppliers increased at the highest rate in 10 months (up 5.2 points to 60.2).
- The activity sub-index remained in expansion in July 2018, although growth was modest and slower than in June 2018 (down 0.6 points to 50.7), while a slight upturn was recorded in employment (up 2.6 points to 50.8).
- Across the four sub-sectors, engineering construction was the strongest performer (up 3.4 points to 54.4), consistent with reports of new tender wins and ongoing support from a strong and expanding pipeline of publicly funded major projects. Commercial construction was more subdued in July 2018, falling into negative territory after 14 months of growth (down 4.6 points to 49.1).
- In the residential construction sub-sectors, house building activity remained stable (up 0.1 points to 50.3), while apartment building contracted for a fifth consecutive month and more sharply (down 11.7 points to 36.7). The apartment sub-sector has now declined in 11 of the past 12 months following a cooling in new orders over the second half of 2017 and into 2018.
- The input prices sub-index climbed 4.5 points to 82.2 in July 2018, with cost pressures lifting along with wages, which recorded the highest Australian PCI® reading in a decade (up 6.5 points to 67.2).
- Despite continued cost increases, the selling prices sub-index decreased a further 2.1 points to 51.4 in July 2018, suggesting that strong market competition and a low inflationary environment are limiting the passing on of cost pressures.
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