Building

Construction activity partially recovers in September 2021

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by 14.9 points to 53.3 in September, indicating a return to modest expansion in activity across the construction sector (readings above 50 indicate expansion in activity, with higher results indicating a stronger pace of expansion).

The indexes for activity, new orders, employment and supplier deliveries rose sharply in response to eased restrictions in the construction sector in NSW. However, the modest expansion can be explained by the operational restrictions in Victoria, plus COVID-19 related state border closures that are affecting the industry’s supply chains nationwide.

Ai Group’s Chief Policy Advisor, Peter Burn, said: “The bounce in the Australian PCI® in September was largely due to many fewer builders and constructors reporting further falls in activity after the clear majority saw activity slump in August. Across the sector, the activity index for September still only reached 49.8 points with as many businesses reporting improved activity as reported further falls. Encouragingly, employment expanded, and new orders rose after a precipitous drop in August. The very strong rebound into expansionary territory for engineering construction more than offset further declines in house building and commercial construction with the apartment sector treading water in September. Input prices and wages continued to rise steeply as did selling prices. Looking ahead, the further easing of restrictions, and the resumption of work put on hold should see more decisive improvement in the sector in the months ahead,” Dr Burn said.

HIA Economist, Tom Devitt, said: “Home building activity declined for the second consecutive month. This reflects the ongoing impact of lockdowns, especially in Victoria. There’s a significant pipeline of work yet to be completed (or even commenced) and still a healthy inflow of new work entering the pipeline. As lockdowns continue to ease, builders’ confidence will improve. This should ensure a rapid bounce back in activity once home building is allowed to commence again. The marginal increase in activity this month was driven by engineering, not home building,” Mr Devitt said.

Australian PCI® – Key Findings for September:

  • The activity indexes for all four sectors in the Australian PCI® improved in September compared to the previous month, with engineering construction especially strong (up 30.2 points to 61.8). Activity in apartments construction was stable (up 17.9 points to 50.0), while housing (up 3.2 points to 39.6) and commercial construction (up 9.9 points to 41.2) remained in contraction.
  • The Australian PCI® index for new orders rose sharply and returned to expansion in September (up 22.5 points to 58.9), with new orders for engineering projects reaching a record high at 70.0 points. Supplier deliveries climbed by 6.6 points but remained in contraction at 42.6 points, as builders across all sectors and locations reported delivery delays and high freight prices.
  • The index for input prices rose in September (up 6.6 points to 98.4) similar to the record high reported in June 2021, while the index for selling prices indicated a strong increase (up 9.2 points to 78.8). Builders nationwide continue to report very high prices from suppliers and importers, with more builders saying they need to pass on these cost increases to their customers.
  • The employment index accelerated in September (up 8.0 points to 57.0), reversing August’s sharp decline, with some builders indicated that a pipeline of work carried over from HomeBuilder required the recruitment of more staff. The wages index rose by 8.2 points to 76.6 as builders continue to report wage pressures arising from skill shortages.

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