AUSTRALIAN INDUSTRY GROUP/HOUSING INDUSTRY ASSOCIATION –

AUSTRALIAN PERFORMANCE OF CONSTRUCTION INDEX (Australian PCI®)

CONSTRUCTION DOWNTURN EASES FURTHER IN DECEMBER 2012.

KEY FINDINGS

■ While there are some encouraging signs, the national construction industry continued to exhibit substantial weakness in December 2012. The overall rate of contraction eased for a third consecutive Month in response to slower declines in activity and new orders.

■ The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.8 points in December to 38.8. The index has now remained below the critical 50 points level (that separates expansion from contraction) for 31 consecutive months.

■ By sector, commercial construction activity contracted at its slowest pace in just over two years, while the rate of decline in engineering construction again eased during the month. In contrast, house building activity declined at its steepest rate in three months amid weaker new orders. Apartment building activity also moved further into negative territory.

■ Businesses reporting declines in activity mainly attributed this to tight credit conditions, strong competition for existing work and uncertainty about the economic outlook. A number of reports from house builders indicated that the weakness in demand was marked by a reduction in home buyer enquiries and a lack of commitment from potential purchasers.

CONSTRUCTION ACTIVITY AND CAPACITY

■ In seasonally adjusted terms, the activity sub-index registered 39.6 in December.

■ This was 3.8 points above the level in the previous month, indicating a further easing in the rate of contraction in total industry activity.

■ This result reflected the influence of slower rates of decline in commercial and engineering construction.

■ Coinciding with these trends, the rate of capacity utilisation rose from of 65.6% in November to 67.3% in December.

ACTIVITY BY SECTOR

■ House building conditions weakened. The sector’s activity sub-index fell by 6.1 points to 34.7 to signal a sharper rate of contraction in December. This reflected a steeper decline in new orders which is of concern for the sector’s outlook.

■ Apartment building activity was more subdued with the sub-index declining by 2.4 points in December to 40.1.

■ Commercial construction contracted at its slowest pace since October 2010. The sector’s sub-index increased by a solid 8.7 points in December to 46.2.

■ The rate of decline in engineering construction moderated in the month with the sector’s sub-index increasing by 2.2 points to 38.5.

NEW ORDERS

■ New orders (seasonally adjusted) declined in December for the 31st consecutive month.

■ However, the rate of decline was distinctly slower with the new orders index increasing by 8.3 points to 42.6.

■ Although new orders in the house building sector weakened, all other broad industry sectors registered less pronounced rates of decline.

■ This suggests that the aggregate level of activity in the industry is likely to improve in coming months.

NEW ORDERS BY SECTOR

■ New orders in the house building sector declined at a steeper rate with the sub-index falling by 4.0 points in December to 33.9.

■ In commercial construction, the new orders sub-index rose by 13.5 points to 50.3. This is the first reading pointing to an expansion in new orders within the sector since mid-2010.

■ For the engineering construction sector, the contraction in new orders moderated with the sub-index rising by 14.0 points to 44.8. Reflecting the lumpy nature of investment demand in the sector, this follows a decline of similar magnitude in the previous month.

■ In the apartment sector, the new orders sub-index rose by 10.1 points to 43.1, the slowest rate of contraction in 22 months.

EMPLOYMENT AND WAGES

■ Employment contracted at a steeper rate following the slower pace of decline in November.

■ The employment sub-index registered 34.0 in December, a fall of 7.1 points from the previous month.

■ Reductions in employment within the house building sector weighed heavily on this result reflecting weaker housing activity and efforts to reduce costs.

■ Growth in wages continued in December, and at a stronger rate, with the wages sub-index rising by 4.3 points to 58.6.

DELIVERIES, INPUT COSTS AND SELLING PRICES

■ Deliveries of inputs from suppliers continued to decline in December.

■ The supplier delivery index registered 37.5. This was 0.3 points below the previous month’s reading to signal a broadly unchanged rate of contraction in December.

■ Input price inflation increased in December. The input costs sub-index registered 68.8, a rise of 3.7 points from the previous month.

■ Amid strong competition for available work, selling prices again contracted. However, the rate of decline eased with the sub-index rising by 4.2 points to 36.0 in the month.

*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

 Jim Vaughan, CEO