QTPA Member Alert | 9/3/2012

PERFORMANCE OF CONSTRUCTION INDEX FEBRUARY 2012 –(Australian Industry Group, HIA, Markit Economics)

The national construction industry is down again in February 2012 and moved further from recovery.  Activity and new orders declined at a steeper rate during the month, with lower workloads resulting in a further contraction in employment  Unusual rain events across the country affected most Turf producers on the east coast with March expected to also show the effect.

Key Findings

■■ The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association decreased by 4.2 points to 35.6 in February. This is the 21st consecutive month that the index has remained below the critical 50 point level separating expansion from contraction.

■■ Activity continued to exhibit particular weakness in apartments and commercial construction. In addition, house building activity declined at a more pronounced rate in line with a sharper fall in new orders within the sector. Despite a decline in engineering construction activity during the month, it remained the most resilient of the four broad sectors of the industry.

■■ Businesses that reported a decline in activity largely attributed this to subdued market demand, and the undermining influences of low consumer confidence, tight credit conditions, and uncertainty about the economic outlook.

Construction activity and Capacity

■■ In seasonally adjusted terms, the activity sub-index registered 33.0 in February.

■■ This was 4.0 points below the level of the previous month, signalling a more marked rate of decline in total industry activity.

■■ Underlying this result was a steeper fall in new orders for the second consecutive month which was indicative of a further weakening in overall industry demand.

■■ Consistent with this, the rate of capacity utilisation remained subdued at 68.3% in February, broadly unchanged from the 67.9% reading in the previous month.

 Activity by sector

■■ House building activity was weaker in the month. The sector’s sub-index fell by 32 points to 37.9 to signal a sharper pace of decline in activity.

■■ Commercial construction continued to exhibit the most subdued activity of the four broad sectors with a sub-index reading of 26.3. This was down by 4.1 points on the previous month amid a scaling back in public building work and overall weakness in approvals.

■■ Apartment building activity also remained weak, although the sector’s sub-index fell marginally by 0.2 points to 34.4, indicating that the rate of decline was broadly unchanged in the month.

■■ The engineering construction sub-index fell by 6.1 points to 41.7 with reports of slower demand from the resources sector. Nevertheless, the pace of contraction remained the slowest of all sectors.

 New orders

■■ New orders (seasonally adjusted) declined in February for the 21^st consecutive month.

■■ Moreover, the rate of contraction was more pronounced with the new orders index falling by 1.7 points to 34.2.

■■ All of the four broad sub-sectors recorded a decline in new orders, although the pace of decline accelerated only in house building.

■■ The further fall in new orders indicates that the industry is likely to remain in a state of contraction over coming months.

New orders by sector

■■ New orders in house building continued to decline with a sub-index reading of 33.3. This was 7.3 points below the level in January, and the weakest reading in four months.

■■ For businesses operating in the commercial construction sector, new orders declined at a slightly slower pace in February with the sub-index rising by 1.0 point to 30.0.

■■ New orders in the apartment sector declined for a 25th consecutive month, although the rate of contraction was broadly unchanged in February with the sub-index registering 28.7, a slight rise of 0.3 points on January.

■■ The rate of decline in new orders within the engineering construction sector also continued at a similar pace with the new orders sub-index rising by just 0.3 points to 39.0.

 Employment and Wages

■■ Employment continued to fall, and at a steeper rate.

■■ The employment sub-index registered 38.5 in February, down by 6.8 points on January.

■■ This was the weakest employment reading over the past four months.

■■ Growth in wages continued in February, and at a higher rate than in the previous month, with the sub-index rising by 1.2 points to 59.9.

Deliveries, Input Costs and Selling Prices

■■ Deliveries of inputs from suppliers declined again in February.

■■ The supplier delivery index registered 38.9, a fall of 5.2 points on January, to signal a steeper rate of decline.

■■ Input price inflation remained elevated with the input costs sub-index registering 70.4, up by 0.5 points on the previous month.

■■ Indicative of the strong competition for available work, the decline in selling prices continued, albeit at a slower rate, with the sub-index rising by 4.1 points to 36.9 points.

DECEMBER 2011– JANUARY 2012 Monthly Change Direction Rate of Change Trend ** (Months).

*Results are based on a sample of over 150 companies.

**Number of months moving in the current direction.

GLOBAL COMPARISONS (index out of 100)

INDUSTRY SECTOR COMPARISONS