Australian PCI®: Construction industry recovery strengthens in November

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by a further 2.6 points to 55.3 in November – a second consecutive month of positive conditions and the strongest monthly result since April 2018 (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 November, with only the apartment sector still contracting (down 6.2 points to 40.9) amid reduced demand from developers and investors. The indices for house building activity and new orders reached new record highs in November, with house builders noting the success of government grants plus low interest rates in supporting demand for new houses and renovations. Builders in commercial and engineering construction said activity and forward orders are returning to a more 'normal' pace in Q4.

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Group Head of Policy, Peter Burn, said: "The Australian construction sector grew more strongly in November with both activity and employment decisively stronger in the month. House building was the cornerstone of the lift in performance with support from commercial and engineering construction. Apartment building remains in the contractionary state it has been in for more than two years and, with question marks over population growth and falling new orders, this sector is the major dampener on the otherwise encouraging outlook for the broader construction sector. Looking to the months ahead, new orders for house building and commercial construction lifted promisingly while new infrastructure plans are yet to translate into a growing pipeline of new orders for engineering construction. In part due to fiscal and monetary policy support, the construction sector is looking ready to play a major role in consolidating the general economic recovery into 2021," Dr Burn said.

HIA Economist, Angela Lillicrap said: "The divide between in the outlook facing detached house builders and apartment builders is continuing to diverge. The impact of low interest rates, the HomeBuilder program and changes in consumer preferences have boosted demand for detached houses. The apartment building activity index continues to show that the market is contracting. The shift in population away from metropolitan Sydney and Melbourne is expected to continue until the return of overseas migration," Ms Lillicrap said.

Australian PCI® – Key Findings for November:

• Conditions were positive and improving in three of the four sectors in the Australian PCI® in November, with only apartment building showing contraction (down 6.2 points to 40.9). House building activity (up 5.7 points to 67.0) was up strongly in all states, buoyed by (temporary) government grants, low interest rates and the relaxation of COVID-19 activity restrictions.
• The Australian PCI® activity index climbed by 6.9 points to 55.3 in November, indicating that activity levels are now recovering. Activity improved strongly in three of the four sectors included in the Australian PCI®, and in all states, with the activity index for housing hitting a record high in November in response to government grants, low interest rates and pent-up demand.
• The new orders index moderated by 3.8 points to 51.7 in November, with new orders for house building surging to a further record high (68.1 points). In contrast, new orders for apartments plunged deeper and orders for commercial and engineering projects dipped into mild contraction again.
• The supplier deliveries index remained unchanged in November at the relatively elevated level of 58.8 points after falling to a record low in May. Participants appear to be catching up on orders from suppliers after freight disruptions.
• The index for input prices rose by 1.8 points to 76.3 in November as demand for building materials and house-building supplies surged. The selling prices index recovered into expansion (up 1.1 points to 51.5) after a lengthy period of stagnation.
• The average wages index was steady at 59.2 points in November and the employment index jumped 6.6 points to 57.6 as activity resumed in more locations. Capacity utilisation increased to its highest monthly result since October 2018 (78% of available capacity being utilised across the construction industry).

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