Construction activity turns corner outside of Victoria in October 2020

housing construction

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by a further 7.5 points to 52.7 in October 2020, with the return to mild expansion driven by housing construction (readings above 50 indicate expansion in activity, with higher results indicating a faster expansion).

The Australian PCI® indicated an improvement in construction industry conditions in all mainland states in October 2020, with results broadly reflecting the status and timing of COVID-19 restrictions in each state. Construction activity stabilised in WA and SA after a strong recovery in September 2020 (results well above 50 points), while NSW and Queensland moved into mild expansion. Victoria’s activity index improved but remained in contraction, after an especially low result in September 2020 and the lowest month on record in May 2020.

Group Head of Policy, Peter Burn, said: “The expansion of the Australian construction industry in October (2020) was driven by further strength in house building and smaller declines in the apartment and engineering construction sectors while commercial building fell further behind. Across the industry employment lifted modestly over the month. With activity restrictions in Victoria now easing and new orders rising strongly across the country, the near-term outlook is encouraging. There is a note of caution in that the improvement in the sector and elsewhere in the economy is still heavily reliant on wage and apprentice support measures and spurred along by exceptionally low interest rates,” Dr Burn said.

HIA Executive Director – Industry Policy, Geordan Murray said: “The improvement in demand for detached housing has been instrumental in lifting the Australian PCI® into expansionary territory for the first time since 2018. Low interest rates are combining with the HomeBuilder program and other fiscal stimulus measures to boost demand in this part of the market. The lift in the Australian PCI® Housing New Orders sub-index in September and October implies that we should see further pick-up in building approvals over coming months with a lift in on-site building activity following soon after. These are positive signs that policy settings are working to generate employment throughout the initial phase of the economic recovery,” Mr Murray said.

Australian PCI® – Key Findings for October 2020:

  • October 2020’s return to expansion (up 7.5 points to 52.7) ended 25 consecutive months in contraction in the Australian PCI®.
  • Activity improved in October across three of the four sectors in the Australian PCI®, with only commercial construction activity deteriorating (down 6.3 points to 39.5). House building activity (up 4.4 points to 61.3) was up strongly in all states except Victoria. Even in Victoria, the decline in house building slowed in the month.
  • The Australian PCI® activity index recovered by 6.0 points to 48.4 in October 2020, indicating that activity levels have almost stabilised, with the surge in housing activity not quite outweighing depressed conditions in the other construction sectors.
  • The new orders index recovered a further 9.8 points to 55.5, with new orders for house building surging to a record high. Builders in other sectors also reported more customer enquiries compared to the lows of recent months.
  • The supplier deliveries index jumped sharply higher (up 15.7 points to 58.8) after falling to a record low in May 2020. Participants appear to be catching up on orders from suppliers after freight disruptions in past months.
  • The index for input prices jumped by a further 2.5 points to 74.5 in October 2020, climbing above its own long-run average (72.3 points). The selling prices index recovered to stability (up 7.4 points to 50.4) as demand for housing recovered in more locations.
  • The average wages index recovered by a further 3.0 points to 59.2 and the employment index indicated a mild recovery (up 1.8 points to 51.0) – welcome news, after total construction employment fell by by 22,400 people (1.8%) in the six months to August 2020 (ABS data).

Source: Ai Group