Australian PCI®: Construction index falls to lowest level since 2013

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) fell by 4.8 points to 37.9 in March, delivering the lowest monthly result since May 2013 (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

In a worrying sign for conditions ahead, March also showed a steep decline in the Australian PCI® index for new orders (down 10.3 points to 35.4).

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Ai Group Head of Policy, Peter Burn, said: "The decline in Australia's construction industry deepened in March as the Australian PCI® fell to 37.9 points. Despite house building activity remaining resilient in 2020 to date, ongoing declines in commercial, engineering and apartment activity saw the construction sector's performance in March record its sharpest monthly contraction in almost seven years. There was wide reporting of weaker demand conditions during the month. Construction businesses linked this to economic uncertainty due to the COVID-19 pandemic which had dampened client confidence, increased risk aversion and lowered investment demand. In terms of the outlook, conditions look more fragile than they have for some time with new orders dropping sharply into negative territory with particular weakness in the pipelines of new work in the commercial and apartment sectors on a nationwide basis," Dr Burn said.

HIA Economist, Angela Lillicrap, said: "Home building activity has recorded its fourth consecutive month of growth in March providing further evidence that the market started the year off looking up. Restrictions on trade have impacted the house building new orders index which contracted further in March. Consumers often delay purchasing decisions during times of economic uncertainty," Ms Lillicrap said.

Australian PCI® – Key Findings for March:

• March marked a 19th consecutive month of contraction in the Australian PCI® (down 4.8 points to 37.9).
• Across the construction industry, activity (down 6.0 points to 39.1) and new orders (down 10.3 points to 35.4) continued to contract in March, and at steeper rates than in February. Continued job declines were also in evidence with the employment index at its lowest level in eight months (down 0.5 points to 36.4).
• Of the four construction sectors in the Australian PCI®, the house building sector indicated modest growth for a fourth consecutive month (up 0.3 points to 53.2, trend), but the apartment (down 1.5 points to 31.9) and commercial construction (down 1.6 points to 35.1) sectors contracted at a steeper rate than in February. Contraction in engineering construction activity eased slightly (up 2.0 points to 42.2).
• Cost pressures remain evident in the construction industry with the input prices index increasing by 2.8 points to 71.0 in March. The selling prices index dropped a further 3.6 points to 39.4, indicating that rising input costs are not, on average, being passed on to customers.
• Growth in wages also continued in March, at a relatively similar rate to the previous month (up 0.6 points to 54.2).

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