Building sector on a roll

The construction sector is continuing to bounce back strongly from poor activity levels in previous months as all of the country emerges from lockdown, according to the latest Australian Performance of Construction Index (Australian PCI).

The index, adjusted monthly by the Australian Industry (Ai) Group and Housing Industry Association of Australia (HIA), increased by 4.3 points to 57.6 in October, which was a far cry from the 38.4 recorded in August 2021 at the peak of the COVID-19 Delta outbreak. (Readings above 50 indicate expansion in activity, with higher results indicating a stronger pace of expansion)

Almost all indices reported healthy increases to sit in expansion territory, indicating a very healthy level of activity right across the industry. The new orders index did not shift much from September levels but is still sitting strong at 58.7. Builders have reported increased new enquiries in addition to the back-log of work due to recent interruptions associated with restrictions.

All sub-sectors bounced back into expansion in October, including apartment building which has experienced negative or low levels of growth in recent years. Apartment building was up 14.3 points to 64.3 while commercial construction was up 21.3 points to 62.5. Engineering construction saw the strongest growth last month, with the index up 15.1 points to 76.9. Following recent contractions, house building activity lifted moderately, up 12.3 points to 51.9.

While increased activity levels across the industry spells great news for the sector and economy growth, it puts more pressure on the industry to deliver despite skill shortages and higher input costs, which inevitably means inflated prices for the consumers.

“A high volume of new orders in October added to the already healthy pipeline of building and construction activity and will further stretch capacity limits and re-expose underlying shortages of skilled labour in many occupations over coming months,” says Ai Group Head of Policy, Peter Burn.

“Pressures on input prices are being exacerbated by localised shortages and the more general disruptions to global supply chains.

“With the pace of wages growth also running high, builders and constructors are testing their ability to recover some of their higher costs from customers with some success.”

Despite ongoing skilled labour shortage in the sector, the employment index stayed stable in October (down 0.2 points to 56.8.) The wages index moderated by 1.5 points to 75.1 but remains well above its long-run average of 67.9 points.

The index for input prices continue to show strong upward pressure but eased from recent peaks, down 1.2 points to 97.2 in October. The index for selling prices also remained strong, down 0.5 points to 78.3, which means builders are increasingly passing on the high input costs to customers.