Major projects lead construction growth

With commercial and engineering construction leading the way, the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.2 points to 57.2 in March 2018 – a 14th consecutive month of industry-wide expansion (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Ai Group Head of Policy, Peter Burn, said: “The expansion of Australia’s construction sector continued in March 2018 led by gains in commercial construction and infrastructure work and supported by robust levels of activity in house building. The orderly retreat from boom conditions in the apartment building sub-sector also continued in March 2018: the Australian PCI® has recorded an expansion in apartment building activity in only one of the past eight months. Construction maintained its strong contribution to Australia’s workforce with employment in the sector growing for the eleventh month in a row. In recent months healthy activity levels have been accompanied by a gradual acceleration of wages, input costs and selling prices,” Dr Burn said.

HIA Senior Economist, Shane Garrett, said: “There is a rebalancing underway in the composition of new dwelling construction. The latest Australian PCI® indicates that detached house building continues to expand, a trend corroborated by ABS data which showed detached house approvals at a two-year high. New apartment building is coming under pressure as a result of APRA restrictions and higher obstacles to foreign buyers. Over time, we expect growth on the detached house side to partly counterbalance the significant declines in new apartment building activity,” Mr Garrett said.

Australian PCI® – Key Findings for March 2018:

  • The construction industry’s 14th consecutive month of expansion was supported by a strong lift in demand, with new orders expanding at the fastest rate in eight months (up 8.0 points to 59.9) and the activity sub-index (up 0.2 points to 57.0) also indicating solid growth led by major construction works. This was associated with continued expansion in deliveries from suppliers (down 3.6 points to 54.7) and an 11th month of rising employment (down 3.1 points to 55.7).
  • Three of the four construction sub-sectors expanded in March 2018, led by commercial construction which expanded at its highest rate since the survey’s inception in September 2005 (up 7.2 points to 65.0). Engineering construction also gained further solid momentum (up 4.0 points to 58.5) amid ongoing support from major infrastructure projects.
  • In the residential sub-sectors, house building activity expanded for a 10th month but at a slower pace (down 9.2 points to 52.6), while apartment building was broadly stable (down 7.0 points to 49.9).
  • Input price inflation remained elevated in March 2018 (down 1.1 points to 75.9), while growth in wages continued at a slightly slower rate (down 2.1 points to 62.0). The selling prices sub-index increased by 5.1 points to 57.8, suggesting that cost pressures are being passed on in part, but still not broadly given strong market competition.

Background: The Ai Group/HIA Australian PCI® is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights. An Australian PCI® reading above 50 points indicates that construction activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

Source: Ai Group

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