Slowest Decline in Construction Since Mid-2010

The following are the outcomes of the latest performance of construction Index (Feb 2013) developed by the Australian Industry Group (AiG) and the Housing Institute of Australia (HIA).

Key Findings

■■ The national construction industry continued to decline in February, although the rate of contraction was the slowest in close to three years.

■■ The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 9.4 points in February to 45.6. While still below the critical 50-point level (that separates expansion from contraction), this was the highest reading for the index since June 2010.

■■ This largely reflected a substantial improvement in house building activity (which expanded for the first time since May 2010) and a solid rebound in engineering construction. However, apartment and commercial construction activity continued to contract sharply during the month.

■■ February data signalled an easing in the rate of contraction in activity, new orders and deliveries from suppliers. This underpinned an improvement in the employment sub-index, which contracted at its slowest rate since growth was last recorded in May 2010.

■■ There were encouraging reports from house builders indicating an increase in customer enquiries and an improvement in the uptake of new work in February. However, operating conditions remain extremely difficult with tight credit conditions, a lack of public sector building activity and weak investor sentiment seen as key negative influences on activity.

Construction Activity and Capacity

■■ In seasonally adjusted terms, the activity sub-index registered 46.6 in February.

■■ This was 8.9 points above the level in the previous month, indicating a distinctly slower rate of contraction in total industry activity.

■■ Underlying this result was a return to growth in house building and engineering construction, combined with a slower rate of decline in apartment building activity.

■■ The rate of capacity utilisation (not seasonally adjusted) rose from 65.8% in January 2013 to 66.6%.

Activity by Sector

■■ House building conditions strengthened. The sector’s activity sub-index increased markedly by 15.4 points to 51.5 in February. This was the first expansion for this sub-sector since May 2010, following 32 consecutive months of decline.

■■ A return to growth was also signalled for engineering construction, with the sector’s sub-index increasing by 14.5 points to 53.2.

■■ The decline in apartment building activity moderated with the sub-index increasing by 3.3 points in February to 42.2.

■■ Commercial construction, however, contracted at a steeper rate in the month. The sector’s sub-index declined by 11.4 points to 28.7 amid continued weak inflows of new work on commercial building projects.

New Orders and Deliveries

■■ New orders (seasonally adjusted) contracted in February for the 33^rd consecutive month.

■■ However, the rate of decline was slower with the new orders index increasing by 4.7 points to 41.7.

■■ This result reflected less pronounced rates of decline in new orders for companies engaged in house building and apartment construction.

■■ With aggregate demand showing signs of improvement, deliveries of inputs from suppliers contracted at a slower rate. The supplier delivery index increased by 9.8 points in February to 46.4.

New Orders by Sector

■■ The contraction of new orders in the house building sector eased markedly in February with the sub-index rising by 17.1 points in the month to 49.7. This was the strongest level for the housing new orders sub-index since May 2010.

■■ In apartment construction, the new orders sub-index rose by 12.8 points to 39.2. However, this followed a substantial decline in January, continuing the volatile trend of recent months.

■■ For the commercial construction sector, the contraction in new orders was broadly unchanged with the sub-index rising by 0.4 points to 39.8. The delayed timing of projects and sluggish government infrastructure spending were key factors cited as detracting from the uptake of work.

■■ In the engineering construction sector, the new orders sub-index declined by 5.1 points to 37.7, indicating a steeper rate of contraction in the forward pipeline after more solid outcomes over the previous two months.

Employment and Wages

■■ The protracted decline in industry employment continued in February, although the rate of contraction eased markedly in the month.

■■ The employment sub-index registered 48.4 in February, a rise of 15.1 points from the previous month.

■■ This represented the highest reading (and therefore the slowest pace of decline) in the 33 months since employment last registered growth in May 2010.

■■ Growth in wages continued in February and at a faster rate, with the wages sub-index increasing by 5.8 points to 60.3.

Input Costs and Selling Prices

■■ Input price inflation picked-up in February. The input costs sub-index registered 72.1, an increase of 8.6 points from the previous month.

■■ Selling prices declined for the 28th consecutive month, highlighting the strong competition for available work that persists across the industry.

■■ Despite the continued decline in selling prices, the rate of contraction was virtually unchanged in the month with the sub-index falling by 0.1 points to 39.6.

*Results are based on a sample of over 150 companies. **Number of months moving in the current direction.

GLOBAL COMPARISONS FEBRUARY 2013 (index out of 100)

INDUSTRY SECTOR COMPARISONS