Construction shifts into growth territory

New report finds growth in housing, new orders and the labour market

A solid increase in housing activity saw the national construction industry move into growth territory last month, according to a new report.

The industry moved 6.2 points higher on the Australian Performance of Construction Index (Australian PCI®), reaching 50.1 points. The Index is collated each month by the Australian Industry Group/Housing Industry Association.

If the Index reading is above 50 points, it indicates an expansion in activity, with the distance from 50 indicating the rate of the expansion, said Ai Group/HIA in a joint media release.

The residential construction sub-sectors increased 10.4 points to 55.8, while apartment building activity also continued to strengthen, rising 1.8 points to 54.9 - its healthiest pace in four months. Peter Burn, Ai Group's head of influence and policy, said renewed strength in house and apartment building drove the Australian construction industry back into growth territory in March.

“The lift in these residential construction sub-sectors from already healthy levels more than compensated for a steeper fall in engineering construction in line with the retreat from investment in mining-related projects and further weakness in commercial construction.

“While new orders for residential construction look positive for the near term, the time is now ripe for higher levels of investment in commercial construction and particularly in infrastructure," Mr Burn said.

Mining-related engineering construction weakened (down 1.5 points to 41.2 - a 10-month low), along with commercial construction, although the pace of contraction was slower than in February (up 5.2 points to 47.0).

Considerable improvement was recorded in the Index’s new orders sub-index (up 12.1 points to 50.8), which returned to expansion for the first time in five months. Deliveries from suppliers also expanded (up 3.9 points to 50.6), and labour market conditions stabilised in March following four months of decline, with the construction employment sub-index increasing by 2.4 points to 50.0.

HIA senior economist Shane Garrett said it’s important that new home building activity does not end up being stifled by the currently "unhelpful" policy settings in place, both for the sake of economic growth in the short term and Australia's housing requirements over the longer term.

The RBA's decision not to reduce interest rates this week has added to the uncertainty across the economy and represents a lost opportunity, Garrett said.