The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) fell by a further 2.8 points to 55.5 in June, trending lower after hitting a record high in March (readings above 50 indicate expansion in activity, with higher results indicating a faster expansion).
Current activity in housing, engineering and commercial construction remained strong in June (trend), but the deceleration from recent highs confirms that growth rates are slowing.
Ai Group Head of Policy, Peter Burn, said: “Australia’s construction industry continued its run of strong growth in June but the pace of expansion is slipping as it faces capacity constraints and rising input prices. Activity across house building, engineering construction and commercial construction rose in June while activity in the apartment sector slipped back after a brief recovery. Employment continued to grow although its pace eased with the builders and constructors reporting increasing difficulty filling positions. Input prices and wages are rising at well above their average pace and strong demand is pushing selling prices up too. New orders were at very healthy levels indicating further expansion in the months ahead. However, lag times are extending with capacity already stretched. It will be critical for governments, their agencies, and industry to work together to ensure that sufficient labour is available to deliver on the full range of infrastructure projects in the pipeline,” Dr Burn said.
HIA Economist, Tom Devitt, said: “This month’s Australian PCI® shows that the level of activity in the building industry is continuing to increase with the Index remaining elevated. The exception is the apartment sector where constraints on migration are hampering demand. This sector has been central to economic activity in Sydney and Melbourne for much of the past decade. Constraints on the supply of building materials are flowing through as higher prices especially for detached housing. The pressure on materials prices and availability will ease as building product manufacturers continue to increase output of key materials including timber,” Mr Devitt said.
Australian PCI® – Key Findings for June:
- Current activity in housing (down 2.3 points to 59.6), engineering (down 1.0 point to 58.4), and commercial construction (up 1.4 points to 56.8) remained strong in June, while apartment building moved into mild contraction (down 1.3 points to 48.9).
- The Australian PCI® index for activity moderated slightly in June (down 0.9 points to 54.8), while new orders accelerated (up 0.9 points to 56.1) as more orders were added to the existing pipeline of future work. Supplier deliveries were stable (down 8.5 points to 50.9), but builders across all sectors continue to report delivery delays and elevated freight pricing.
- The indexes for input prices (up 2.5 points to 98.3) and selling prices (up 7.0 points to 85.2) both hit new record highs in June (index series commencing in 2005 and 2008 respectively), with near-universal nationwide reports of price rises from suppliers of materials and components and widespread reports of builders needing to pass on these cost increases to their customers.
- The employment index slowed from its record high in May but remained elevated (down 6.1 points to 58.3) as reports of skill shortages become more widespread across construction occupations and locations. The wages index rose by 5.4 points to 70.4 in June, continuing to climb well above the long-term average for this index series (59.6 points). Construction capacity utilisation rose to a new record high at 85.4%.
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