QTPA Member Alert | AUSTRALIAN PERFORMANCE OF CONSTRUCTION INDEX (JUNE 2012) (18/7/2012)

AUSTRALIAN PERFORMANCE OF CONSTRUCTION INDEX (JUNE 2012)

NATIONAL CONSTRUCTION INDUSTRY WEAKNESS PERSISTS IN JUNE

KEY FINDINGS

■ The national construction industry recorded another sharp contraction in June with the pace of decline unchanged for a third consecutive month. Poor demand and falling workloads continued to weigh heavily on new orders, activity and employment.

■ The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association registered 34.8 in June, just 0.1 points above the reading in May. The index has now remained below the critical 50 point level separating expansion from contraction for 25 consecutive months.

■ Apartment construction was a principal source of weakness with activity contracting at the steepest rate in 10 months. Subdued conditions also persisted in commercial construction and house building, although the pace of decline in activity moderated in both sectors. Engineering construction remained the most resilient sector despite recording a contraction in activity.

■ Respondents largely attributed the weak state of the industry to subdued demand conditions and the undermining influences of low consumer confidence, tight credit conditions, project delays and uncertainty about the economic outlook.

CONSTRUCTION ACTIVITY AND CAPACITY

■ In seasonally adjusted terms, the activity sub-index declined by 1.3 points to 28.9 in June.

■ This is the sharpest contraction registered in overall industry activity since February 2009.

■ Underlying this result was a further marked fall in new orders, indicative of the substantial weakness in overall industry demand. ■ Consistent with this, the rate of capacity utilisation declined from 70.2% in May to 67.2%, the weakest level in three months.

ACTIVITY BY SECTOR

■ Apartment building activity contracted sharply with the sub-index declining by 4.9 points to 21.8. This was the steepest rate of contraction since September 2011 and extended the sector’s

sequence of decline to 26 months.

■ House building activity continued to contract in the month and activity levels remain exceedingly weak. More positively, however, the sector’s sub-index rose by 2.5 points to register 30.7, signalling a slower pace of decline.

■ Commercial construction also contracted at a slower rate with the sub-index rising slightly by 1.2 points to 26.6. Nevertheless, the pace of decline remains considerable.

■ The engineering construction sub-index declined by 1.4 points to 39.9. The delayed timing of projects and sluggish government funded infrastructure spending were cited as impacting negatively on the uptake of work.

NEW ORDERS BY SECTOR

■ New orders in the house building sector continued to decline with the sub-index falling by 2.8 points to 32.4, signalling a sharper rate of contraction in the month.

■ In the commercial construction sector, the new orders sub-index registered 27.9. This was unchanged on the previous month and is further evidence that the weak uptake of new business in the sector remains deeply entrenched.

■ New orders in the apartments sector declined for a 29th consecutive month. Moreover, the rate of contraction was more pronounced than in May with the sub-index registering 26.8, a fall of 1.6 points.

■ For the engineering construction sector, new orders also contracted, although at a slower pace with the sub-index rising by 1.8 points to 39.5.

EMPLOYMENT AND WAGES

■ Employment continued to contract at a broadly unchanged rate.

■ The employment sub-index registered 38.7 in June, up by 0.3 points on May.

■ Falling workloads and attempts to reduce costs were again cited as the main factors driving the reduction in employment.

■ Growth in wages continued in June, and at a slightly faster rate than in the previous month, with the sub-index rising by 2.1 points to 55.7.

DELIVERIES, INPUT COSTS AND SELLING PRICES

■ Deliveries of inputs from suppliers continued to decline in June in

response to weak demand.

■ However, the pace of decline moderated with the supplier delivery

index registering 43.1, a rise of 3.4 points from May.

■ Input price inflation lifted in June. The input costs sub-index

registered 73.7, a rise of 4.9 points from the previous month.

■ Indicative of the fierce competition for available work that is forcing

builders to lower the price of jobs, selling prices again declined.

However, the rate of decline moderated with the sub-index rising by 2.9 points to 38.9.

*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

Chief Executive Officer