Australian PCI®: Construction contracts for fifth month

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Peter Burn, Chief Policy Advisor at the national employer association Ai Group said: "Australia's construction industry contracted for a fifth consecutive month in October. Each of the four subsectors – housing, apartments, commercial and engineering – contracted in the month. The construction employment indicator also declined to its lowest level since July 2020 indicating a particularly sharp fall in employment compared with September. While both input and selling prices remain elevated, input price pressures eased slightly and supplier deliveries improved, indicating some softening in supply chain constraints. Economic uncertainty and several months of interest rate rises are clearly impacting the construction sector and particularly the residential subsectors. Lending data from the ABS show a continuing reduction in new loans for home buyers compared with the much higher levels seen over the period of exceptionally low interest rates. With the Australian PCI® new orders indicator showing a further decline of new orders and with the further rate rise announced this week and with more rate rises foreshadowed, further declines in construction activity appear likely over coming months," Dr Burn said.

HIA Senior Economist, Nicholas Ward, said: "RBA cash rate increases are working. Rate hikes, combined with builders' focus on completing the pipeline of existing work, have seen new sales materially weaken in recent months. It will be some time before the full effect of rate hikes is evident in terms of reduced capacity utilisation and reduced cost pressures, because the pipeline to work through is so large," Mr Ward said.

Australian PCI® – Key Findings for October 2022:

• All four construction subsectors were in contraction in October. This is the first time all sectors have declined in the Australian PCI® since August 2021.
• The employment index fell into contraction, recording the lowest result since July 2020.
• Demand side pressures, including rising interest rates and economic uncertainty, are dampening construction sales and new orders.
• Supply side constraints, especially a shortage of skilled trades, continue to inhibit activity, but there are signs of materials supply chain pressures easing.
• The selling prices index was virtually unchanged at 77.1 points. While input prices moderated, at 83.7 the indicator remains higher than selling prices.
• Capacity utilisation fell slightly to 82.8% but remains elevated as it has been since the start of 2021.

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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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All 2022 release dates for Australian PCI®

Media Enquiries
Wendy Larter (Ai Group) – 0432 867 665
Nicholas Ward (HIA Senior Economist) – 0421 048 038