Australian PCI: Construction industry recovery strengthens into 2021

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by a further 2.3 points to 57.6 in December 2020 and January 2021, indicating four consecutive months of positive conditions and the strongest result since July 2017 (readings above 50 indicate expansion in activity, with higher results indicating a faster expansion).

Three of the four sectors in the Australian PCI® recovered strongly in December and January with only the apartment sector still contracting and all four components of construction activity reported robust expansion, with a surging new orders index boding well for the months ahead.

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Ai Group Head of Policy, Peter Burn, said: “The stronger performance of Australia’s construction sector over the months of December and January is further evidence of the extension of the recovery from the depths of the COVID-19 crisis. House building remained strong and the pace of improvement accelerated among the commercial builders. Engineering construction maintained a gentler expansion and apartment building, which has lagged for some time, continued to do so although the pace of decline was arrested. Across the construction sector, activity, employment and new orders all lifted on November levels. The strong rise in new orders is particularly encouraging and points to the likelihood that coming months will see the recovery continue. Notwithstanding the good news on recent activity and with interest rates set to remain low for several years, with immigration on hold there will be limited opportunity for residential construction, and particularly the apartment sector over the course of 2021,” Dr Burn said.

HIA Economist, Angela Lillicrap said: “The Australian PCI® index for new orders in the house building sector remained at a record high in January, consistent with other indicators including housing finance and new home sales. HomeBuilder was the catalyst for consumer confidence in the market improving and this has been enhanced by several factors including low interest rates and growth in house prices. There is a divergence between the conditions facing detached house builders and the conditions facing apartment builders. The index tracking apartment construction continues to indicate the market is contracting, albeit at a slower pace. The apartment market is likely to be constrained going into 2021 due to slower population growth and a stronger preference for detached houses,” Ms Lillicrap said.

Australian PCI® – Key Findings for December 2020 and January 2021:

  • Conditions were positive and improving in three of the four sectors in the Australian PCI® in December 2020 and January 2021 with only apartment building showing contraction, albeit at a slower pace (up 4.6 points to 45.5). House building activity decelerated from its record high in November but remains strong (down 1.7 points to 65.3), while commercial building (up 9.7 points to 62.5) and engineering construction (unchanged at 53.3) each recorded a third consecutive month of recovery.
  • The Australian PCI® activity index moved up a further 2.1 points to 57.4 in December and January, indicating three consecutive months of recovery. Activity improved strongly in three of the four sectors included in the Australian PCI®, and in all states, with the activity index for house building remaining elevated in the wake of November’s record high.
  • The new orders index reached its highest level since March 2018 (up 6.9 points to 58.6), with the new orders index for house building maintaining its 68.1-point record high while orders for commercial and engineering projects returned to expansion.
  • The supplier deliveries index decelerated slightly (down 2.2 points to 56.6) but remains relatively elevated as builders appear to be catching up on supplies after freight disruptions.
  • The index for input prices remained elevated (up 0.1 point to 76.4) in December and January as demand for building materials and house-building supplies surged. The selling prices index strongly consolidated November’s return to expansion (up 7.2 points to 58.7) after a lengthy period of stagnation.
  • The average wages index nudged up 1.1 points to 60.3 – its highest level since 2018 – and the employment index remained in strong expansion (down 0.6 points to 57.0) as activity resumed in more locations and the JobKeeper and Apprentice Support schemes provided important assistance. Capacity utilisation increased to its highest monthly result since April 2018 (79.8% of available capacity being utilised across the construction industry).

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Seasonally adjusted

Index this month

Change from last month

12 month average

Seasonally

adjusted

Index this month

Change from last month

12 month average

Australian PCI®

57.6

2.3

41.3

House building

65.3

-1.7

47.3

Activity

57.4

2.1

40.1

Apartments

45.5

4.6

34.1

Employment

57.0

-0.6

42.7

Commercial

62.5

9.7

36.8

New Orders

58.6

6.9

40.3

Engineering

53.3

0.0

38.7

Supplier Deliveries

56.6

-2.2

43.3

Input Prices

76.4

0.1

69.1

Selling Prices

58.7

7.2

42.1

Average Wages

60.3

1.1

53.1

Capacity Utilisation (% – seasonally adjusted)

79.8

1.8

73.4

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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