Australian PCI®: COVID-19 restrictions plunge construction into contraction

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Ai Group Head of Policy, Peter Burn, said: "Australia's construction sector has shifted from healthy expansion to steep contraction in a flash as restrictions in the face of COVID-19 outbreaks have closed sites and disrupted supply chains. The impacts were concentrated in the south-east corner of the country although border closures by other states also contributed to supply chain disruptions and prevented the movement of construction personnel. Nevertheless, beyond the south-east corner aggregate construction activity avoided contraction. Nationally, all four construction sectors suffered drops in activity in August with the house building sector joining apartment building and commercial and engineering construction in negative territory. Employment slipped slightly in August with builders and construction businesses mindful of recent difficulties in filling positions, hesitant to put staff off. Input price pressures continued into August although the pace of increase eased with lower levels of activity. New orders fell precipitously – a pattern evident across the four construction sectors and, in combination with continuing restrictions, pointing to the likelihood of further contraction in September and October," Dr Burn said.

HIA Chief Economist, Tim Reardon, said: "Lockdowns have brought the industry to a standstill and are eroding builders' confidence. The Australian PCI® was dragged even further into negative territory in August after activity began contracting in July. Even activity in home building specifically, started going backwards in August for the first time in almost a year. The industry was not permitted to operate like it did during previous lockdowns, despite its exceptional record of operating safely throughout the pandemic, consistent with COVID safety measures. While this does stretch out the HomeBuilder boom for longer, it carries with it significant costs. Builders can’t work from home. Households that can’t move into their incomplete new homes are saddled with the financial stress of ongoing rent or mortgage payments. Government coffers and the broader economy also suffer from the loss of this very valuable activity. Apartment activity is also still contracting in the absence of overseas migrants, students and tourists," Mr Reardon said.

Australian PCI® – Key Findings for August:

• The activity indexes for all four sectors in the Australian PCI® were well under the 50-point level separating expansion from contraction in August, with big falls in NSW and Victoria due to lockdown disruptions. The biggest drops were in the housing (down 14.4 points to 36.4) and commercial construction (down 11.6 points to 31.3) activity indexes, which both recorded a second month of contraction. The apartment building activity index rose by 13.3 points to 32.1 – still far from its expansionary state in June.
• The Australian PCI® index for new orders fell sharply in August (down 13.1 points to 36.4), indicating serious contraction. Some builders reported lower enquiries from potential customers and less interest in joining waitlists. The supplier deliveries index indicated a second month of contraction and at a faster rate in August (down 7.3 points to 36.0) as builders across all sectors and locations reported delivery delays and high freight prices.
• The indexes for input prices (down 5.4 points to 91.8) and selling prices (down 11.6 points to 69.6) indicated some deceleration in price rises in August but remain elevated. Builders nationwide continue to report very high prices from suppliers and importers, with more builders saying they need to pass on these cost increases to their customers.
• The employment index dipped just below 50 points in August (down 11.8 points to 49.0), indicating a pause in the jobs recovery underway earlier in 2021. The wages index fell 8.7 points to 68.4 following a recent peak in July (which reflected new minimum wage and award rates from 1 July). Builders continue to report wage pressures arising from skill shortages.

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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
Tim Reardon (HIA Chief Economist) – 0423 141 031