Building sector continues on road to recovery

After a positive October during which the construction sector finally moved back into the expansion phase after two long years of contraction, new figures released for November showed further encouraging signs that the sector is well and truly back in business.

The monthly Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) improved by a further 2.6 points to 55.3 in November – a second consecutive month of positive conditions and the strongest monthly result since April 2018. Readings above 50 indicate expansion in activity, with higher results indicating a faster expansion.

Three of the four sub sectors in the Australian PCI recovered strongly last month with the only exception being the apartment sector, which is still contracting (down 6.2 points to 40.9) amid reduced demand from developers and investors.

All other sectors – engineering, commercial and housing were back in the growth phase, with the housing sector the clear standout. In fact, the index for residential construction hit a record high in November with a reading of 67, a 5.7 point jump from October.

“The impact of low interest rates, the HomeBuilder program and changes in consumer preferences have boosted demand for detached houses,” said HIA Economist, Angela Lillicrap.

"The divide between the outlook facing detached house builders and apartment builders is continuing to diverge.

“The apartment building activity index continues to show that the market is contracting. The shift in population away from metropolitan Sydney and Melbourne is expected to continue until the return of overseas migration.”

House construction aside, builders in commercial and engineering construction have said they are seeing more activity in their spaces and that forward orders are returning to a more normal pace.

“Looking to the months ahead, new orders for house building and commercial construction lifted promisingly while new infrastructure plans are yet to translate into a growing pipeline of new orders for engineering construction,” said Australian Industry Group Head of Policy, Peter Burn.

“In part due to fiscal and monetary policy support, the construction sector is looking ready to play a major role in consolidating the general economic recovery into 2021.”

In the other indices, the new orders index moderated by 3.8 points to 51.7 in November, with new orders for house building surging to a further record high (68.1 points). In contrast, new orders for apartments plunged deeper and orders for commercial and engineering projects dipped into mild contraction again.

The index for input prices rose by 1.8 points to 76.3 in November as demand for building materials and house-building supplies surged. The selling prices index recovered into expansion (up 1.1 points to 51.5) after a lengthy period of stagnation.

The average wages index held steady at 59.2 points in November and the employment index jumped 6.6 points to 57.6 as activity resumed in more locations.