QTPA Member Alert | TURF ALERT CONSTRUCTION MARCH 2012 (10/4/2012)

March 2012 Construction Industry Continues to Languish

The latest of March Australian Industry Group (AIG) Performance of Construction Index (PCI) has been produced in conjunction with the Housing Industry Association (HIA).  This is as up to date assessment on the Building and Construction Industry across Australia that is available.

The declines whilst continuing are subdued and as such provide some light in the tunnel.

Key Findings

■■ The national construction industry remained in a state of contraction in March, although the pace of decline eased slightly. Poor demand and subdued workloads resulted in businesses again reducing their employment during the month.

■■ The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association registered 36.2 in March, an increase of 0.6 points on the reading in February. The index has now remained below the critical 50 point level separating expansion from contraction for 22 consecutive months.

■■ Activity exhibited particular weakness in the residential construction sub-sectors while the reduction in commercial construction activity moderated in March following a sharp fall in February. March also saw a decline in engineering construction, although it remained the sector showing the greatest resilience largely because of the strength of resource-related projects.

■■ Businesses that reported declines in activity generally attributed this to subdued demand, tight credit conditions and strong competition for available work. Residential builders cited weak buyer confidence.

Construction activity and Capacity

■■ In seasonally adjusted terms, the activity sub-index registered 35.5 in March.

■■ This was 2.5 points above the level of the previous month, signalling a moderation in the rate of decline in total industry activity.

■■ Underlying this result were notably steeper declines in house building and apartment construction which were largely counter-balanced by the moderating influence of a slower rate of reduction in commercial

construction activity.

■■ The rate of capacity utilisation fell from 68.3 in February to 66.1 in March.

Activity by sector

■■ House building activity declined further in the month. The sector’s sub-index fell by 7.6 points to 30.3 to signal the sharpest pace of decline since September last year.

■■ Apartment building activity also remained weak, with the sector’s sub-index falling by 3.9 points to 30.5. This was the steepest rate of decline recorded by the sector in the past four months.

■■ Commercial construction was again subdued with a sub-index reading of 35.5. However, this was up by 9.2 points on the previous month, an early indicator that more projects are starting to receive

the go ahead.

■■ The engineering construction sub-index fell slightly by 0.5 points to 41.2. There were reports of project delays impacting on the activity levels of survey respondents in the month. Nevertheless, engineering

construction clearly remained the best performing sector.

New orders

■■ New orders (seasonally adjusted) declined in March for the 22^nd consecutive month.

■■ Moreover, the rate of contraction was more pronounced with the new orders index falling by 1.0 point to 33.2.

■■ All four broad sub-sectors recorded a reduction in new orders, with particular weakness evident in house building where the pace of decline accelerated for a second consecutive month.

■■ The further fall in new orders suggests that the significant weakness evident across large sections of the industry is likely to persist over coming months.

New orders by sector

■■ New orders in house building continued to decline with a sub-index reading of 28.5. This was 4.8 points below the level in February, and the weakest reading in six months.

■■ For businesses operating in the commercial construction sector, new orders declined at a slower pace in March with the sub-index rising by 2.4 points to 32.4.

■■ New orders in the apartment sector declined for a 26th consecutive month, although the rate of contraction was less pronounced than in February with the sub-index registering 35.7, a rise of 7.0 points

on February.

■■ The rate of decline in new orders within the engineering construction sector also continued with the new orders sub-index falling by 2.8 points to 36.2.

Employment and Wages

■■ Employment continued to fall, although at a slightly slower rate.

■■ The employment sub-index registered 39.4 in March, up by 0.9 points on February.

■■ Where employment levels fell, reports indicate that this was in line with decreasing workloads.

■■ Growth in wages continued in March, although at a slower rate than in the previous month, with the sub-index falling by 5.8 points to 54.1.

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