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Australian PCI®: Construction eases at end of 2017

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) eased by 4.7 points to 52.8 in December, marking an 11th consecutive month of expanding conditions but with a slowing in the industry’s overall growth momentum (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

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Ai Group Head of Policy, Peter Burn, said: “Australia’s construction sector continued to expand in December with employment rising and each of the four sub-sectors recording a lift in activity compared with the previous month. Builders and constructors reported higher input costs – with energy, construction materials and wages all on the rise. There are suggestions of an easing in conditions – December saw a pull-back in activity growth and a modest decline in new orders. Looking at 2017 as a whole, even with the steady retreat in apartment building, construction activity was robust through the year. While the pace of growth may well ease, continued healthy levels of work across the industry look set to see a solid start to 2018,” Dr Burn said.

HIA Senior Economist, Shane Garrett, said: “The expansion in activity on both the new house and apartment sides during December is a welcome development. Over the past year, apartment building in particular has been placed under pressure by the steady widening of foreign investor penalties across the states. Foreign investor participation in the apartment market is a vital strand of supply to the rental markets right across Australia. Impeding investor participation risks undermining the healthy functioning of rental markets everywhere,” Mr Garrett said.

Australian PCI® – Key Findings for December:

  • Across the four construction sub-sectors, engineering construction (down 7.2 points to 56.9) and house building (down 6.8 points to 54.5) remained the strongest performers, but the pace of activity growth in both sectors was well down on November’s solid increases.
  • The rate of expansion in commercial construction also slowed (down 8.3 points to 51.5), while apartment building posted an improved performance to record a marginal rate of growth (up 3.0 points to 50.7 – still well below the solid growth of May’s 68.5-point high).
  • Overall construction activity dropped 6.2 points to 54.6 from November’s historic high, while demand conditions were also more subdued with the new orders sub-index drifting into mild negative territory (down 7.5 points to 49.2). Consistent with a solid backlog of work and scheduled project starts in 2018, employment growth held relatively firm (down 0.4 points to 54.9).
  • The input prices (up 3.9 points to 82.7) and wages (up 2.1 points to 64.4) sub-indexes climbed further in November, while the selling prices sub-index slipped 1.3 points to 58.6. this suggests that cost pressures are being passed on, but not broadly given strong market competition.

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Seasonally adjusted

Index this month

Change from last month

12 month average

 

Index this month

Change from last month

12 month average

Australian PCI®

52.8

-4.7 

54.2

New Orders

49.2

-7.5

54.6

Activity

54.6

-6.2

53.9

Employment

54.9

-0.4

53.6

Houses

54.5

-6.8

56.2

Deliveries

53.4

-3.0

55.3

Apartments

50.7

3.0

49.4

Input Prices

82.7

3.9

73.8

Commercial

51.5

-8.3

52.4

Selling Prices

58.6

-1.3

56.7

Engineering

56.9

-7.2

55.5

Wages

64.4

2.1

63.1

 

 

 

 

Capacity Utilisation (%)

76.9

-2.3

77.5

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: Tony Melville (Ai Group) – 0419 190 347

Shane Garrett (HIA Senior Economist) – 0450 783 603