Construction decline slows

Results from the Australian PCI® show construction decline slowed last quarter.

The national construction industry contracted at a milder rate in March. The sector up 2.0 points to 46.2 in the seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®).

March marked the third consecutive month since the construction industry’s return to growth in the final quarter of 2013, however the Index still remains below the critical 50 points level that separates expansion from contraction. The easing in the sector’s contraction was due to slower declines in both new orders and activity.

Housing Industry Association chief economist, Harley Dale, said the easing of contraction in this quarter was “disappointing” following promising signs in the sector at the end of 2013.

“It is disappointing to now observe a full 2014 quarter where the Australian PCI® has again been in contractionary territory. The detached house activity component remains expansionary, if only just, and 2014 should be a healthy year for new home building activity,” said Dale.

“What the sector and broader economy needs, however, is a sustained recovery in new home building, commensurate with average construction levels being considerably higher over coming decades than those achieved over the past 20 years.”

Dale said the prospect of achieving this would be significantly bolstered by a national taxation reform agenda, including the removal of the excessive and inefficient taxes levied on new home building.

Other key findings from the Australian PCI® include:

  • The construction activity sub-index was 48.3 points, which was 3.0 points above the level of the previous month in March (seasonally adjusted)
  • Across the sub-sectors, house building fell by 1.4 points to 50.8 points indicating a stabilization in activity; apartment building declined 1.0 point to 45.6 points; commercial construction declined by 3.4 points to 56.5 points and engineering construction was up 5.8 points to 45.5
  • The new orders sub-index remained in negative territory, registering 48.3 points in March. However, it was up by 8.8 points from February to signal the slowest rate of contraction in 2014 so far
  • Employment was down 3.3 points to 42.7 points in response to continued efforts by businesses to contain costs
  • Input costs were higher rising by 6.0 points to 72.4 points, while selling prices were down 1.4 points to 43.2 points, highlighting on-going pressures on profit margins

Australian industry group director, public policy, Peter Burn, said that while there was a consolidation of recent gains in the house building sector, and further signs of recovery in commercial construction, these were outweighed in March by a further decline in engineering construction and a pull-back in apartment building.

“As is the case with the broader economy, the rebalancing of the construction sector as mining-related activity slows still has a considerable way to go,” he said.

“The welcome development in the past couple of months comes from improvements in activity and new orders in commercial construction. If this can continue and recent momentum is maintained in the residential construction sectors, attention can turn to the remaining missing link – greater investment in non-mining related engineering construction.

Dr Burn also noted that recent discussions between the states and the commonwealth government are “encouraging,” and will set the scene for a major focus on new infrastructure investment.