QTPA Member Alert | AUSTRALIAN PERFORMANCE OF CONSTRUCTION INDEX (MAY 2012) (7/6/2012)

AUSTRALIAN PERFORMANCE OF CONSTRUCTION INDEX (MAY 2012)

(Australian Industry Group, Housing Industry Australia, MarkIT Economics)

Construction Industry Weakness & Remains Deeply Entrenched

Key Findings

■■ The national construction industry continued to exhibit substantial weakness in May, contracting at a rate that was broadly unchanged from April.

■■ The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association

registered 34.7 in May, 0.2 points below the reading in April. The index has now remained below the critical 50 point level separating

expansion from contraction for 24 consecutive months.

■■ By sector, both commercial construction and house building activity registered weaker performances with the former recording the

steepest rate of contraction in activity in just over three years. In contrast, apartment building activity contracted at a slower pace

after the notable deterioration of the previous month. The decline in engineering construction was unchanged on the previous month,

although it remained the most resilient sector reflecting the strength of resource related projects.

■■ Most businesses linked the ongoing decline in activity to poor market demand, citing low levels of new orders and project delays. Intense

competition to secure existing contracts and difficulties in obtaining finance had also contributed to a lack of new business.

Construction activity and Capacity

■■ In seasonally adjusted terms, the activity sub-index registered 30.2 in May.

■■ This was 2.4 points below the level of the previous month, signalling a steeper rate of contraction in total industry activity.

■■ Weighing heavily on the industry’s overall performance in May were steeper rates of declines in house building and commercial

construction activity.

■■ Construction capacity utilisation remained at a weak level, despite rising from a rate of 68.8 in April to 70.2 in May.

Activity by sector

■■ House building activity continued to contract in the month and activity levels remain exceedingly weak. The sector’s sub-index

declined by 5.1 points to 28.2, the steepest rate of contraction since September 2011.

■■ The rate of decline in apartment building activity moderated with the sub-index rising by 3.8 points to 26.7. However, this extended the

sector’s current sequence of declines to 25 months.

■■ A further deterioration in commercial construction was evident in a fall in the sector’s sub-index of 9.8 points to 25.4. More worryingly for

the sector’s outlook, this reflected another sharp fall in new orders.

■■ The engineering construction sub-index was broadly unchanged, rising by 0.4 points to 41.3. Nevertheless, it remained the best performing sector.

New orders by sector

■■ New orders in the house building sector continued to decline with a sub-index reading of 35.2. Although extremely weak, this was 2.9 points

above the level in April, signalling a slower rate of contraction in new orders.

■■ New orders in the commercial construction sector declined for a 23rd consecutive month. Moreover the rate of contraction was steeper than in April

with the sub-index registering 27.9, a fall of 6.3 points.

■■ For businesses operating in the apartment construction sector, new orders continued to contract, but at a slower pace than in April with

the sub-index rising by 4.6 points to 28.4.

■■ New orders within the engineering construction sector also contracted at a slower pace with the new orders sub-index rising by 3.2 points to 37.7.

Employment and Wages

■■ Employment registered a further contraction during the month.

■■ The employment sub-index registered 38.4 in May, down by 1.2 points on April.

■■ Falling workloads and attempts to reduce costs were the main factors cited for the further reduction in employment.

■■ Growth in wages continued in May, although at a slower rate than in the previous month, with the sub-index falling by 1.7 points to 53.6.

Deliveries, Input Costs and Selling Prices

■■ Deliveries of inputs from suppliers continued to contract in May, although at a slower rate, consistent with the slight easing in the

pace of decline in new orders.

■■ The supplier delivery index registered 39.7, a fall of 3.0 points from April.

■■ Input price inflation lifted with the input costs sub-index registering 68.8 in May, 3.3 points above the previous month.

■■ Indicative of the strong competition for available work, the decline in selling prices continued, and at an unchanged rate, with the

sub-index steady at 36.0 in May.

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