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Australian PCI®: Slow start for construction in 2017

The national construction industry made a slow start to 2017, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) registering 47.7 points in January (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease). 

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Ai Group Head of Policy, Peter Burn, said: "The national construction industry opened 2017 continuing the overall contraction that was evident for much of 2016. Among the industry’s four sub-sectors only house building gained ground in January with apartment, commercial and engineering construction all slipping further. A good part of this contraction is a relatively gentle correction from very high levels of activity in engineering construction connected with the mining-investment boom and the easing back from the recent surge in residential building and particularly in apartment building. As a result, while there is still a considerable amount of construction underway, including in transport infrastructure in the eastern states, overall levels of activity continue to ease.  This further underlines the importance of encouraging growth across a broader cross-section of the economy," Dr Burn said.

HIA Chief Economist, Harley Dale, said: "The Australian PCI® outcomes for January 2017 paint a diverse picture of Australia’s construction industry in early 2017. That is consistent with the large differences in construction industry conditions across sectors, sub-sectors and regions. The house building sub-sector just lifting its head above the expansionary parapet in January is encouraging, while the profile of moderate contraction for apartment building is unlikely to cause great surprise. It's disappointing that engineering construction activity hit its second lowest point in a year at the start of 2017," Dr Dale said.

Australian PCI® – Key Findings for January:

  • The Australian PCI® increased by 0.7 points to 47.7 in January to remain in contraction.
  • The slightly milder decline in the Australian PCI® in January was due to less pronounced reductions in employment (up 3.8 points to 47.3) and deliveries (up 1.9 points to 49.8), but both the activity (down 0.4 points to 47.3) and new orders (down 1.0 point to 47.6) sub-indexes contracted at a slightly steeper rate.  
  • While the house building sub-sector stabilised in January (up 4.6 points to 50.2), apartment building (up 0.4 points to 46.5) and commercial construction (down 0.3 points to 47.5) remained in negative territory and engineering construction recorded its second-lowest activity reading in 12 months (down 6.0 points to 42.8).
  • Pressure from rising wages (up 0.4 points to 60.2) and input prices (down 5.3 points to 65.6) is being passed on, at least partially, with the selling prices sub-index increasing 2.6 points to 55.3, but profit margins remain under pressure amid a highly competitive tender pricing environment.

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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®

47.7 

+0.7 

48.2 

New Orders

47.6

-1.0

48.2

Activity

47.3

-0.4

49.0

Employment

47.3

+3.8

45.4

Houses

50.2

+4.6

47.7

Deliveries

49.8

+1.9

48.7

Apartments

46.5

+0.4

45.8

Input Prices

65.6

-5.3

67.2

Commercial

47.5

-0.3

48.0

Selling Prices

55.3

+2.6

54.7

Engineering

42.8

-6.0

44.3

Wages

60.2

+0.4

59.8

       

Capacity Utilisation (%)

68.5

-5.4

73.5

 

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.

Release dates for Australian Performance Indices in 2017

Media Enquiries:
Tony Melville (Ai Group) – 0419 190 347
Harley Dale (HIA Chief Economist) – 0414 994 186