Australian PCI®: Construction industry slump continues into August

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) fell by 4.8 points to 37.9 in August, with the pace of decline in business conditions worsening again after a pause in July (readings below 50 points indicate contraction in activity, with lower results indicating a faster rate of contraction).

Builders around the country report being adversely affected by the lockdown in Victoria plus border closures in other states and reduced confidence. New orders are down sharply across the board, and regulatory processes, OH&S requirements and disrupted supplies are slowing work on site, even in locations with no local activity restrictions for construction.

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Ai Group Head of Policy, Peter Burn, said: "After showing tentative signs of improvement in July, the Australian construction sector moved further into contraction in August with the Australian PCI® dropping to 37.9. For the sector as a whole, activity and employment both fell in August and activity measures in each of the four industry sectors were down in the month. The sharp fall in activity in Victoria was a major factor in the downturn while border restrictions in other states have hampered builders and constructors who are reliant on interstate supplies and the availability of tradies from across borders. Businesses in the industry have been watching their order books closely for some time and the further decline in orders in August will be a major concern both for their businesses and for their employees and suppliers," Dr Burn said.

HIA Economist, Angela Lillicrap said: "The Australian PCI® continues to show that the contraction in residential building activity is ongoing. The index tracking new orders for houses dropped sharply after posting two stronger months following the announcement of the Australian Government’s HomeBuilder program. The index tracking new orders for apartments also weakened in August. Demand for apartments is likely to be constrained until population growth returns. The HomeBuilder program will bolster activity in the detached house segment, but the broader softening in new orders highlights the risks facing the residential building sector," Ms Lillicrap said.

Australian PCI® – Key Findings for August:

• August marked a 24th consecutive month of contraction in the Australian PCI® (down 4.8 points to 37.9), with the rate of decline hastening after a brief easing in July.
• Across the construction industry, national activity and travel restrictions due to COVID-19 continue to take a heavy toll on construction activity (down 14.5 points to 31.1), with an especially marked impact in Victoria. Looking ahead, the new orders index fell by 8.4 points to 35.1 in August, indicating a sharper decline and wiping out most of July's gain.
• The supplier deliveries index recovered by a further 6.3 points to 43.5 after falling to a record low in May. Survey participants continue to report reduced orders but less price discounting from local suppliers.
• Activity and new orders indices deteriorated across all four construction sectors in the Australian PCI®, with apartment building activity (down 11.1 points to 22.8) and engineering construction activity (down 18.5 points to 27.0) plummeting to levels approaching their recent historic lows.
• The index for input prices increased by 9.0 points to 67.3, while the selling prices index recovered 6.6 points to 42.4, remaining relatively weak due to reduced demand across all parts of construction.
• The average wages index (up 6.1 points to 53.5) and the employment index (up 4.7 points to 46.1) recovered from recent lows, with survey participants continuing to stress the importance of the JobKeeper and Apprentice Support schemes in maintaining employment and incomes at present.

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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.

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