Australian PCI: Strong construction activity in May

All four components of construction activity expanded strongly in May, with the indexes for activity and new orders remaining elevated while employment hit a new record high (up 5.2 points to 64.4).

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Ai Group Head of Policy, Peter Burn, said: "The national construction sector continued to lead Australia's rebound in May with a further expansion of activity led by the house building and engineering construction sectors. Commercial construction and apartment building also grew although at more moderate levels. The pace of employment growth across the construction sector was the highest recorded since the Australian PCI® commenced in 2005 and this fueled a further increase in reports of difficulties in filling positions. The heat in the market is also evident in the extent of input cost acceleration, wage rises and price increases. With new orders growing strongly again in May and the pipeline of infrastructure projects stretching over a number of years, there is a clear need for the industry and governments to move together to ensure there is adequate capacity in the sector and its supply chains to meet ongoing demand," Dr Burn said.

HIA Economist, Tom Devitt, said: "The volume of work on the ground continued to increase in May. The extension of the HomeBuilder commencement deadlines will see new house building levels remaining elevated for longer. This elevated level of demand is putting pressure on the supply of trades and materials. It also occurred at the same time as a surge in international demand for shipping and raw materials, including timber. This will continue to challenge house building until the market slows toward the end of this year," Mr Devitt said.

Australian PCI® – Key Findings for May:

• Three of the four industry sectors in the Australian PCI® remained expansionary in trend terms in May (see table below), while apartment building was stable (down 0.7 points to 50.5). House building (down 2.2 points to 62.8) and engineering construction (up 1.7 points to 64.3) continued to lead the way.
• The Australian PCI® indexes for activity (down 7.1 points to 55.7) and new orders (down 1.8 points to 55.2) moved lower but remained relatively elevated amid a national pre-deadline HomeBuilder scramble. Supplier deliveries moved back towards May's record high (up 3.4 points to 59.4), but builders across all sectors continue to report problems with delivery delays and elevated freight pricing.
• The indexes for input prices (up 3.3 points to 95.8) and selling prices (up 4.9 points to 78.2) both hit new record highs in May (index series commencing in 2005 and 2008 respectively), with strong demand for immediate commencements and disrupted supplies of materials and components contributing to widespread pricing pressures.
• The employment index hit a new record high in May (up 5.2 points to 64.4). The wages index moderated slightly (down 0.4 points to 65.0) but remains well above the average for this index series (59.5 points).

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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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