Australian PCI: Construction drops again, but housing activity stabilises

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) dropped 3.9 points to 40.0 in November, despite interest rate cuts and an easing in bank lending restrictions producing encouraging signs of a stabilisation in house building activity (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

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Ai Group Head of Policy, Peter Burn, said: “Australia’s construction sector deteriorated further in November with activity lower and employment and new orders falling steeply. Activity declined most steeply in engineering construction with apartment building not far behind. Commercial construction activity also fell leaving the stable level of activity in house building as the relative bright spot in the month. Pressures on selling prices were maintained and with wages and input costs continuing to rise, the squeeze on margins intensified. November’s fall in employment was the sixteenth consecutive month of decline across the sector and unfortunately, the further drop in new orders is pointing to the likelihood of further falls in the months ahead,” Dr Burn said.

HIA Economist, Thomas Devitt, said: “House building activity defied the declines of the broader Australian PCI® this month. While this is not an indication that home building is returning to the strong conditions of recent years, it is not declining as fast as was apparent over the past year. This is consistent with the stabilisation we have seen in a number of other indicators including housing finance and new home sales. It is also good to see the effect that record low interest rates and looser lending conditions are having on the established housing market. The slingshot in prices in the two biggest cities will help support a positive wealth effect, broader confidence across the economy and eventually increased demand for housing,” Mr Devitt said.

Australian PCI® – Key Findings for November:

  • November marked a 15th consecutive month of contraction in the Australian PCI®, (down 3.9 points to 40.0).
  • The activity index in the Australian PCI® continued to fall sharply in November (down 0.3 points to 40.9), reflecting ongoing weakness in the uptake of new work as the rate of decline in new orders steepened (down 6.3 points to 37.5). Employment also fell at a markedly steeper rate (down 8.4 points to 39.4).
  • Of the four construction sectors in the Australian PCI®, house building was the best performing sector with activity stabilising after 15 months of contraction (up 1.5 points to 49.7). Apartment building continued its decline, with activity in the sector falling at a rate only marginally slower than the previous month (up 0.6 points to 37.0).
  • Across the major project sectors, engineering construction fell for a sixth month and at its sharpest rate in over a decade (down 2.6 points to 33.3) while commercial construction again declined with demand conditions remaining patchy across key industrial and commercial property categories (down 0.5 points to 43.7).
  • The input prices index in the Australian PCI® increased by 2.0 points to 67.8, with elevated energy costs and supplier price rises continuing to exert upward pressure on prices. Growth in wages also continued in November, although at a slower pace (down 2.4 points to 60.5).
  • The selling prices index continued to contract in November, and at a slightly steeper rate (down 0.9 points to 43.7). This indicates that rising input prices and other costs are not, on average, being passed on to customers, and instead are largely absorbed by builders.

View all Economic Indicators

Seasonally adjusted

Index this month

Change from last month

12 month average

Trend

Index this month

Change from last month

12 month average

Australian PCI®

40.0

-3.9

42.6

House building

49.7

1.5

40.4

Activity

40.9

-0.3

41.5

Apartments

37.0

0.6

34.0

Employment

39.4

-8.4

43.6

Engineering

33.3

-2.6

44.9

New Orders

37.5

-6.3

41.7

Commercial

43.7

-0.5

45.0

Supplier Deliveries

44.1

0.8

44.9

Input Prices

67.8

2.0

67.4

Selling Prices

43.7

-0.9

39.1

Average Wages

60.5

-2.4

60.0

Capacity Utilisation (% – seasonally adjusted)

73.3

-4.1

75.7

Results above 50 points indicate expansion. All indexes for sectors in the Australia PCI® are reported in trend terms (Henderson 13-month filter).

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.

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