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Australian PCI®: Construction industry retreats further in May due to COVID-19

Following its plunge to record lows in April, the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) rose by 3.3 points to 24.9 in May, with continued COVID-19 activity restrictions and related declines in sentiment, spending and investment leaving all activity and sector indices firmly negative (readings below 50 indicate contraction in activity, with lower results indicating a faster contraction).

New orders, new contract tendering opportunities and customer inquiries have largely dried up across all sectors, with survey participants mostly gloomy about the current situation. Several pointed to the JobKeeper scheme as the only thing keeping their business and workforce together in May.

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Ai Group Head of Policy, Peter Burn, said: "Australia's construction sector suffered a second month of severe contraction in May. While the pace of decline eased somewhat from the record fall in April, all broad areas of the industry – house building, apartment building, commercial construction and engineering construction – all remained deeply in contractionary territory. Activity and employment remained very low and new orders were barely at a trickle. Selling prices are depressed and with input prices still rising, builders are operating both at low volumes and at very skinny margins. In these conditions, monetary and fiscal measures are playing critical roles in supporting jobs and wages and in trying to get work pipelines flowing. At this stage there are very few signs of a rebound and governments will need to be ready to extend existing measures and further commit to large and small-scale infrastructure projects," Dr Burn said.

HIA Chief Economist, Tim Reardon, said: "Home building will continue to contract even as the economy opens up again. The lags involved in the housing industry between sale and construction will see the contraction of building work accelerate downwards in the second half of the year. This deterioration will continue into 2021 as the restrictions on migration cause a further deterioration in market conditions," Mr Reardon said.

Australian PCI® – Key Findings for May:

  • May marked a 21st consecutive month of contraction in the Australian PCI® (up 3.3 points to 24.9), with the rate of decline slowing slightly after April's plunge to record lows.
  • Across the construction industry, national activity restrictions due to COVID-19 are taking a heavy toll on construction activity (up 3.3 points to 21.3), even though the industry has not been subject to mandatory shut-down requirements like many other industries. Looking ahead, new orders (up 7.3 points to 23.0), new contract tendering opportunities and customer inquiries have largely dried up.
  • The supplier deliveries index fell to a new record low since this series commenced in 2005 (down 4.8 points to 29.3), with participants reporting reduced orders but also travel and delivery disruption throughout May.
  • Of the four construction sectors in the Australian PCI®, housing (up 5.4 points to 20.2), apartments (up 8.7 points to 21.6) and commercial construction(up 6.4 points to 18.1) all contracted at a slower pace in May, but the activity index for engineering construction fell to a new record low (down 2.3 points to 23.8).
  • The indices for input prices (down 0.6 points to 64.7) and selling prices (up 2.2 points to 28.4) both recovered a touch from the lows seen in April but remain at historically low levels. Prices fell across all sectors as competition intensified for remaining larger projects.
  • The average wages (up 3.3 points to 47.0) and employment (up 3.5 points to 29.1) indices partly recovered in May after precipitous falls in April, but both were still indicating sizeable further declines in paid work in May (albeit slower than in April). The capacity utilisation index recovered to 70.2% in May, after its sudden fall to a record low of 60.5% in April. The JobKeeper scheme is an important source of support for employment in the construction industry at present.

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Australian PCI®




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Results above 50 points indicate expansion. All indexes for sectors in the Australia PCI® are reported in trend terms (Henderson 13-month filter).

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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Media Enquiries:
Tony Melville (Ai Group) – 0419 190 347
Tim Reardon (HIA Chief Economist) – 0423 141 031