Australian PCI®: Construction grows amid supply and price pressures

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Peter Burn, Chief Policy Advisor at the national employer association Ai Group said: "Australia’s construction sector continued a run of expansion in March with activity, employment and new orders all gaining further ground. Commercial construction was the most rapidly expanding sector, and it was supported by solid gains in apartment building, house building and engineering construction. Input price pressures, including freight costs, remained very high and managing the supply of inputs continues to present major hurdles. Builders and constructors once again highlighted the difficulties attracting and retaining staff and particularly skilled staff. Reports of difficulties managing sites with high numbers of people in isolation resurfaced during March as COVID infections lifted. Businesses reported they were recovering at least some of their higher costs in the market. Unless further disruptive factors intervene, it appears likely that current activity levels will continue over coming months although the capacity to lift activity in the face of the supply pressures is becoming increasingly challenging," Dr Burn said.

HIA Economist, Tom Devitt, said: "Strong housing market conditions continue to be reflected in the data almost a year after the end of HomeBuilder. This has been driven by the pandemic trend of homebuyers demanding more space and amenity. Loans for the construction or purchase of new homes continued to sustain levels higher than pre-COVID. House building activity continued to expand after the drag of the Omicron outbreak and higher-than-usual uptake of holiday leave. The availability of land, labour and materials is the salient constraint on builders, rather than any absence of demand. The associated affordability concerns in the detached market are likely to increase the appeal of units, townhouses and apartments, especially upon the return of overseas migrants, students and tourists," Mr Devitt said.

Australian PCI® – Key Findings for March 2022:

• The activity indexes for all four sectors in the Australian PCI® expanded in March, building on February's return to better business conditions. Activity rose and improved in apartments (up 6.3 points to 56.3) and commercial construction (up 4.5 points to 63.3), while engineering (down 2.7 points to 53.6) and housing (down 4.1 points to 54.2) both moderated compared to the stronger growth in the previous month.
• The new orders index in the Australian PCI® lifted slightly in March (up 0.3 points to 55.7), indicating expanding and improving demand, while supplier deliveries contracted for a ninth consecutive month (up 1.3 points to 43.2).
• The index for input prices moderated slightly but continued to indicate ongoing upward pressure (down 1.0 point to 94.6), marking more than a year of extremely elevated results. The selling prices index marked 17 months of expansion but eased from February's series high (down 1.6 points to 85.2).
• The average wages index eased back from a series high in February (down 0.9 points to 76.6) but recorded a seventh month of elevated wages pressures. The employment index jumped to a series high in March (up 11.8 points to 66.1) and respondents to the Australian PCI® reported plans to increase employment in the coming months.

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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
Graham Turner (Ai Group) – 0415 285 320
Tom Devitt (HIA Economist) – 0439 514 656