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Australian PCI®: Construction turns down in August

The national construction industry turned down in August with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) falling 5.0 points to 46.6 (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

A particularly steep fall in housing activity (a drop of 13.8 points to 41.1) dominated the sector in August and was only partly offset by growth in apartment building (up 8.8 points to 56.8), commercial construction (up 1.4 points to 53.2) and engineering construction (up 6.9 points to 55.5). 

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Ai Group Head of Policy, Peter Burn, said: "Very weak conditions in the house building sub-sector overshadowed the positive news for apartment building, commercial construction and engineering construction in August and pulled the broader construction industry down for the month. While mining-related work continues to wind down, in August this trend was offset by a lift in other engineering construction work – including in rail and road infrastructure. A pull-back in employment in August after two months of expansion was the lowest reading for this sub-index in five months. Ominously for the near-term, alongside the fall in employment, both new orders and deliveries were negative for the sector as a whole," Dr Burn said.

HIA Chief Economist, Harley Dale, said: "We’re at the peak of the residential construction cycle, but the Australian PCI® suggests there is not enough non-residential activity coming along behind. New home construction has been the kingmaker of the Australian economy in recent years – it's a shame policy makers have failed to respect its importance. When new home construction inevitably peaks by 2016/17, people will look to a plan for further growth. Right now there seems to be nothing, because housing is the convenient bedrock and nobody has the vision to look beyond the short term," Dr Dale said.

Australian PCI®: Key Findings for August:

New orders (down 6.2 points to 45.5) and employment (down 4.6 points to 47.6) both fell into negative territory in August, while the activity sub-index lifted by 1.6 points to 51.4 to be above the 50-point mark that separates contraction from expansion.

  • Apartment building lifted into expansion (up 8.8 points to 56.8) after edging below 50 points in July, but house building tumbled into contraction (down 13.8 points to 41.1) after three months of growth.
  • Commercial construction edged further into positive territory, rising by 1.4 points to 53.2 and recording its third consecutive month of expansion, while engineering construction expanded on the back of non-mining infrastructure work (up a healthy 6.9 points to 55.5). 
  • Growth in the wages sub-index continued in August and at a faster rate (up 3.6 points to 66.4), while the input prices sub-index remained elevated (rising 1.7 points to 71.0). The selling prices sub-index slipped by 3.0 points to 47.9.

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Index this month

Change from last month

12 month average

 

Index this month

Change from last month

12 month average

Australian PCI®

46.6

-5.0

49.1

New Orders

45.5

-6.2

48.1

Activity

51.4

1.6

48.7

Employment

47.6

-4.6

50.7

Houses

41.1

-13.8

50.0

Deliveries

37.3

-16.8

49.3

Apartments

56.8

8.8

55.4

Input Prices

71.0

1.7

68.1

Commercial

53.2

1.4

47.5

Selling Prices

47.9

-3.0

47.6

Engineering

55.5

6.9

46.1

Wages

66.4

3.6

61.6

       

Capacity Utilisation (%)

69.9

-7.3

74.4

* From August 2016, the Australian PCI® sub-indexes for capacity utilisation, wages and selling prices are reported on a seasonally adjusted basis (previously unadjusted).

Background: 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.

Media Enquiries:
Graham Turner (Ai Group) – 0415 285 320
Harley Dale (HIA Chief Economist) – 0414 994 186