Construction activity picks up further in July

The Australian building industry is continuing to show signs of recovery with the Australian Performance of Construction Index (Australian PCI) rising a further 7.2 points to 42.7 points in July.

However, a reading of under 50 means the sector is still in contraction, albeit in much better shape than it was in a few months ago when the global pandemic hit.

The Ai Group and the Housing Industry Association, which adjust the index on a monthly basis, said July’s survey was conducted before stage 4 and 3 restrictions were introduced across Victoria and warned the state’s strict lockdown measures will inflict further pain on an already ailing industry.

“The sudden tightening of restrictions on Victorian construction projects will have a material impact at a national level in the coming period and will have particularly severe consequences for activity, employment and on the many businesses that supply into the construction sector in Victoria,” said Ai Group Head of Policy, Peter Burn.

“Even before the new restrictions were announced, the immediate outlook for the sector was weak with new orders falling again in July. Further policy measures will be required to stem a longer wave of job losses and business closures.”

Looking into the sub-indices, the new orders index made a large leap up, climbing 10.7 points to sit at 43.5.

Across the four sub sectors, apartment building continued to be the worst performer – dropping 10.9 points to 33.9 in July. The Ai Group said respondents have noted little prospect of a recovery in demand from international and local investors in the near term.

House building climbed 7.4 points to 47 points, as demand for new houses and renovations lifts in response to federal and state government grants, and activity resumes in most of the country except Victoria.

“This data shows that confidence in the housing market has improved with the easing of restrictions and the Australian Governments’ HomeBuilder grant which has led to some new orders for homes,” said HIA Economist, Angela Lillicrap.

However, she said the market remains suppressed well below levels experienced prior to COVID-19 and things in the apartment construction sector do not look too promising.

“There are over 130,000 multi-unit dwellings under construction. If no new projects enter the pipeline, then once these projects reach completion there will be a significant decline in employment in the sector which will weigh on the wider economy,” she said.

Commercial and engineering construction both made double-digit improvements to sit at 42 and 45.5 points in July.

The average wages index recovered by 3.1 points while the employment index recorded a 1.0 point improvement from recent lows. Respondents said the national JobKeeper and Apprentice Support schemes have been crucial to supporting employment in June and July.

The input prices index dropped slightly to 58.3 while the selling prices index also fell 4.4 points to 35.8, meaning profit margins continue to be squeezed for construction companies.