Australian PCI®: Construction activity outside Victoria improves in September

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by 7.3 points to 45.2 in September, indicating a slower pace of contraction compared to August (readings below 50 points indicate contraction in activity, with lower results indicating a faster rate of contraction).

Across the states, the Australian PCI® indicates that construction activity is resuming at very different speeds, following the COVID-19 disruptions in Q2. Conditions improved in September in all states except Victoria, where PCI results sank to extremely low levels similar to April and May's record lows.

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Group Head of Policy, Peter Burn, said: "While the Australian construction sector continues to contract, there are gathering signs of a tentative turnaround. Outside of Victoria, construction conditions improved marginally in September with more distinct gains in South Australia and Western Australia. In contrast, Victorian construction remained in a deep trough. Indexes for each of the subsectors improved with house building activity entering into positive territory for the first time since February. In the apartment and commercial building sectors the pace of decline eased significantly while engineering construction activity continued to slump though at a less severe pace. Looking forward to the months ahead, new orders were higher for house building and, while falling in other parts of the sector, declined at a gentler pace than over recent months. In a further encouraging sign, the pace of decline in employment eased again in September. If hopes for easing of the Victorian restrictions and for further fiscal support in the Federal Budget are realised, the construction sector should be in a position to contribute to overall growth into 2021," Dr Burn said.

HIA Economist, Angela Lillicrap said: "The Australian PCI® index for new orders in the house building sector has moved into expansion for the first time since February 2020, indicating that HomeBuilder is having a positive impact on the detached house market. There is a stark divergence between the conditions facing detached house builders and the conditions apartment builders face. The index tracking apartment construction continues to indicate the market is contracting. Activity in this segment is likely to remain constrained until there is greater certainty about the pathway for overseas migration to return," Ms Lillicrap said.

Australian PCI® – Key Findings for September:

• September marked a 25th consecutive month of contraction in the Australian PCI® (up 7.3 points to 45.2).
• The Australian PCI® activity index recovered by 11.3 points to 42.4 in September, indicating a further decline but at a slower pace – COVID-19 restrictions continue to take a heavy toll on construction activity in all states, with an especially marked impact in Victoria. Looking ahead, the new orders index recovered by 10.6 points to 45.7, indicating a further (albeit milder) decline
• The supplier deliveries index was steady (down 0.4 points) at 43.1 after falling to a record low in May. Survey participants reported reduced orders, reduced price discounting and ongoing freight disruptions.
• Activity and new orders indices deteriorated across three of the four construction sectors in the Australian PCI®, with house building activity (up 19.5 points to 56.9) and new orders (up 17.3 points to 55.2) making a partial recovery in all states except Victoria. Apartment building activity continued to slump but at a milder pace (up 20.5 points to 43.3), while the contraction in commercial construction activity also slowed (up 13.5 points to 45.8). While engineering construction activity improved slightly, it remains close to historic lows (up 2.5 points to 29.5).
• The index for input prices jumped by a further 4.7 points to 72.0 in September, reaching its highest level since January in a volatile year to date. The selling prices index recovered slightly (up 0.6 points to 43.0) but remains weak due to reduced demand across most parts of construction.
• The average wages index recovered by a further 2.7 points to 56.2 and the employment index (up 3.1 points to 49.2) was broadly neutral. Survey participants continued to stress the importance of the JobKeeper and Apprentice Support schemes to employment in September.

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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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Media Enquiries:
Tony Melville (Ai Group) – 0419 190 347
Angela Lillicrap (HIA Economist) – 02 6245 1366