Australian PCI®: Construction sector shrinks for fourth month

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Peter Burn, Chief Policy Advisor at the national employer association Ai Group said: "Australia's construction industry contracted in September with activity and new orders both lower than in August. Performance was uneven across the industry with activity in the residential sectors worsening at a faster pace while commercial construction lifted and engineering construction was flat. Employment on the other hand was higher and capacity utilisation edged higher. While input and selling prices as well as wages continue to rise, all three measures indicate a lower rate of increase than their average levels over the past year. Higher interest rates are clearly having a negative impact on the residential sectors and the lagged impact of recent increases is likely to drag these sectors lower over coming months as suggested by the sharp fall in new orders in these sectors. Against this background the Reserve Bank’s decision to slow the pace of its normalisation of interest rates will be of some comfort to house and apartment builders," Dr Burn said.

HIA Senior Economist, Nicholas Ward, said: "Recent RBA interest rate increases are clearly having a negative impact on demand in the residential construction industry. Australian PCI® data indicate new orders for houses have contracted sharply in recent months. But because builders built up a large pipeline of work during the pandemic, it will take a significant period of time for weaker demand to translate into weaker activity on the ground. Capacity utilisation amongst builders remains at very elevated levels, as they work through the pipeline," Mr Ward said.

Australian PCI® – Key Findings for September 2022:

• Two of the four construction sectors – housing and apartments – were in deep contraction in September. Activity improved in the commercial sector and was stable in engineering.
• Demand side pressures, including rising interest rates and economic uncertainty, are dampening consumer-facing construction sectors from elevated levels see during the pandemic.
• Supply side constraints continue to inhibit growth, but there are early signs of supply chain pressures easing. Construction employment also improved.
• The selling prices indicator grew again to 77.2. While input prices fell slightly, at 88.6 the indicator remains higher than selling prices.
• Capacity utilisation rose slightly to 83.2%, it has been sustained at highly elevated levels since the end of 2020.

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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
Tony Melville (Ai Group) – 0419 190 347
Nicholas Ward (HIA Senior Economist) – 0421 048 038