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Australian PCI®: Construction ends 2015 in negative territory

After four months of expansion, the national construction industry ended 2015 in negative territory with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index® (Australian PCI®)  dropping 3.9 points to 46.8 points in December (readings below 50 points indicate contraction, with the distance from 50 points indicating the strength of the contraction).

The contraction in the Australian PCI® in December occurred despite growth in the apartment and house building sectors. This month, their strength was outweighed by weak activity in the engineering and commercial construction sectors.

Ai Group Chief Economist, Julie Toth, said: "The residential construction sectors - and especially apartment construction - have finished 2015 on a high note, but unfortunately at a national aggregate level, this is being outweighed by the strength of the current contraction in engineering construction activity. Meanwhile, commercial construction has failed to register any meaningful growth through much of 2015. Looking ahead, the downturn in new orders across all four construction sub-sectors in December is of concern for 2016. Like the recent building approvals data, it suggests a peak in apartment construction activity might come earlier in 2016 than had been anticipated. A much-needed lift in commercial construction approvals and new orders is yet to materialise to take its place," Ms Toth said.

HIA Economist, Geordan Murray, said: "The Australian PCI® result for December 2015 reaffirms the view that conditions for residential building, in both the house and apartment building, look set to soften in 2016. The Australian PCI® activity sub-indexes show that both house building and apartment building expanded in December 2015, which reflects the ongoing work on projects that are already in the pipeline. With falls in the new orders sub-indexes to sub-fifty levels, this situation implies new projects may not be entering the pipeline as quickly as existing work is being completed. Nevertheless, there is still a very large volume of residential building work yet to be done which should sustain an elevated level of activity throughout the first half of 2016 despite the softening in new orders in late 2015," Mr Murray said.

Australian PCI® - Key Findings for December:

  •  Apartment building expanded at its slowest pace in six months. House building returned to growth, with activity rising modestly after two consecutive months of contraction.
  •  Engineering construction continued to exhibit weakness, declining at its steepest rate in three months.  Commercial construction also fell more sharply in December, with respondents noting patchy conditions across all of the major project categories.
  • For the construction industry as a whole, both activity and new orders recorded steeper declines in December, due to this weakness in engineering and commercial construction.
  • Construction industry employment stabilised following four months of growth, while slow growth in deliveries from suppliers was broadly unchanged from November.

 

Index
this month

Change from
last month

12 month
average

 

Index
this month

Change from
last month

12 month
average

Australian PCI®

46.8

-3.9

48.6

New Orders

44.3

-5.5

48.0

Activity

44.4

-3.7

48.1

Employment

50.1

-4.4

50.0

Houses

52.6

4.6

50.2

Deliveries

51.1

-0.2

48.5

Apartments

54.3

-14.7

56.6

Input Prices

68.7

 2.8

71.7

Commercial

40.0

-6.3

47.3

Selling Prices

48.3

 5.5

48.0

Engineering

41.2

-4.8

43.7

Wages

61.1

          2.4

58.9

 

 

 

 

Capacity Utilisation (%)

72.9

-2.2

71.2

 

Media Enquiries: Gemma Williams (Ai Group)                0401 664 047
                            Geordan Murray, Economist, HIA:      0438 103 651

Release dates for Australian PCI® in 2016

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.