Australian PCI: Construction industry hits record high in March

The indexes for new orders, employment and supplier deliveries all hit record highs, as house builders nationwide scrambled to commence residential projects as soon as possible in order to meet the final HomeBuilder deadline. Conditions were positive but slower in apartment building, commercial building and engineering construction.

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Ai Group Head of Policy, Peter Burn, said: "The already fast-paced improvement in the construction industry lifted another gear in March with a record rise in the Australian PCI®. All four construction sectors trended higher led by house building and engineering construction. Employment grew at the most rapid pace in the history of the series and wages rose faster than at any time since the Global Financial Crisis. Input prices surged due to a combination of high demand, supply constraints and rising freight costs for imported inputs. New orders went through the roof in March in part fuelled by the looming cut offs for the HomeBuilder program. While this surge in new orders is very likely to fade from here on, work will continue to flow through construction supply chains for many months and will provide ongoing stimulus to the sector and the broader economy," Dr Burn said.

HIA Economist, Angela Lillicrap, said: "The new highs being reached in housing activity are consistent with the other leading indicators we have been monitoring, including HIA's New Home Sales survey and the ABS's building approvals data. Activity is being driven to new heights by a combination of the HomeBuilder program, record low interest rates and shifts in population away from apartments and capital cities towards detached housing and regional areas. The record volume of work will see home building absorb workers from across the economy in 2021 and into 2022. The outlook for multi-units, unfortunately, will remain poor in the absence of overseas migrants, students and tourists," Ms Lillicrap said.

Australian PCI® – Key Findings for March:

• All four sectors in the Australian PCI® remained strongly expansionary in trend terms in March (see table below), with current activity in housing (up 0.1 point to 70.2) and engineering construction (up 1.7 points to 59.1) especially strong.
• The Australian PCI® activity index fell by 3.7 points to 57.1 in March from a record high in February on the back of the jump in residential construction. New orders hit a record high in March (up 14.6 points to 64.7) as the 31 March deadline for HomeBuilder approached. Supplier deliveries also reached a record high (up 5.2 points to 62.1) as builders raced to meet demand.
• Both the input (up 12.7 points to 92.9) and selling price (up 5.5 points to 71.8) indexes hit record highs in March, reflecting a combination of supply delays and constraints, rising prices for imports and freight, as well as strong customer demand in the residential sector.
• The employment index hit a record high in March (up 1.4 points to 63.1) as residential builders increased work hours and staff numbers, but the short-term nature of the current surge means some seem wary of longer-term commitments. The wages index surged to its highest monthly result since 2008 (up 7.4 points to 71.8).

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Results above 50 points indicate expansion.

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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