AUSTRALIAN INDUSTRY GROUP/HOUSING INDUSTRY ASSOCIATION –

AUSTRALIAN PERFORMANCE OF CONSTRUCTION INDEX (Australian PCI®)

CONSTRUCTION DECLINES AT STEEPER RATE IN MARCH 2013

KEY FINDINGS

The national construction industry moved deeper into negative territory in March, following the solid improvement recorded in the previous month.

■■The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) declined by 6.6 points in March to 39.0. The index has now remained below the critical 50 points level (that separates expansion from contraction) for 34 consecutive months.

■■Underlying the weaker conditions in March were steeper contractions in activity, new orders and deliveries from suppliers. This saw employment contract at a sharper rate following the substantial moderation of the previous month.

■■By sector, there was a return to declining activity in house building and engineering construction while the contraction in apartment building activity was the sharpest in five months.   Commercial construction remained the weakest performing sector although its rate of decline was broadly unchanged over the month.

■■Most businesses linked the on-going decline in activity to subdued levels of incoming work and a shortage of new tender opportunities. Businesses also cited tight credit conditions,  project delays and weak investor sentiment as key dampening influences on activity.

CONSTRUCTION ACTIVITY AND CAPACITY

■■In seasonally adjusted terms, the activity sub-index registered 39.0 in March.

■■This was 7.6 points below the level in the previous month, indicating a steeper rate of contraction in total industry activity.

■■This result reflected the fragility of overall demand with new orders and deliveries from suppliers declining more sharply in the month.

■■Consistent with this, the rate of capacity utilisation (not seasonally adjusted) fell from 66.6% in February 2013 to 63.7%, the weakest reading over the past five months.

ACTIVITY BY SECTOR

■■House building activity stepped back into negative territory after expanding in February for the first time in almost three years. The sector’s sub-index declined by 4.5 points to 47.0 in March.

■■A return to negative territory was also signalled for engineering construction. The sector’s sub-index declined by 14.8 points to 38.4 in March, offsetting the gains in activity recorded in February.

■■The decline in apartment building activity was more pronounced with the sub-index declining by 8.0 points in March to 34.2, the weakest reading in five months.

■■Commercial construction remained particularly subdued with the sector’s sub-index registering 29.3.This was a rise of 0.6 points from the previous month, indicating a broadly unchanged rate of contraction.

NEW ORDERS

■■New orders (seasonally adjusted) contracted in March for the 34^th consecutive month.

■■Moreover, the rate of decline was steeper with the new orders sub-index declining by 5.7 points to 36.0.

■■This result reflected sharper decreases in new orders across all of the major industry sub-sectors with a steeper pace of contraction particularly evident for businesses engaged in commercial construction work.

■■With aggregate demand remaining subdued, deliveries of inputs from suppliers continued to contract, and at a more pronounced rate. The supplier delivery index declined by 1.9 points in March to 44.5.

NEW ORDERS BY SECTOR

■■The fall in new orders in the house building sector was steeper in March with the sub-index down by 7.7 points in the month to 42.0. While this unwound some of the improvement seen in the previous month, it was the second strongest level for the housing new orders sub-index in 2 1/2 years.

■■In apartment construction, the new orders sub-index fell by 7.5 points to 31.7. However, this followed a solid rise in February, continuing the volatile trend of recent months.

■■For the commercial construction sector, new orders contracted markedly with the sub-index declining by 10.2 points to 29.6. A scaling back in public sector construction activity and overall weakness in approvals remain significant drags on activity.

■■In the engineering construction sector, the new orders sub-index declined by 1.2 points to 36.5, indicating a slightly steeper rate of contraction in the forward work pipeline.

EMPLOYMENT AND WAGES

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

■■The employment sub-index registered 39.2 in March, a decline of 9.2 points from the previous month.

■■Where employment levels fell, reports indicate that this was in line with reduced levels of incoming work.

■■Following a solid increase in February, the wages sub-index declined by 9.8 points in March to 50.5, indicating a stabilisation of wages in the month.

DELIVERIES, INPUT COSTS AND SELLING PRICES

■■Input price inflation moderated in March. The input costs sub-index registered 65.4, a decrease of 6.7 points from the previous month.

■■Selling prices declined for the 29th consecutive month, highlighting the strong competition for available work that persists across the industry.

■■Moreover, selling prices were reduced at a sharper rate in the month with the sub-index falling by 8.0 points to 31.6.

GLOBAL COMPARISONS (index out of 100)

INDUSTRY SECTOR COMPARISONS (March 2013)