Construction activity slumps to seven year low

Australia’s construction industry has been in a fragile state for the past 18 months but the COVID-19 pandemic has pushed the sector further into uncertainty.

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) fell by 4.8 points to 37.9 in March, delivering the lowest monthly result since May 2013.

Readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease.

In a worrying sign for conditions ahead, March also showed a steep decline in the index for new orders, which fell 10.3 points to 35.4.

“Construction businesses linked this to economic uncertainty due to the COVID-19 pandemic which had dampened client confidence, increased risk aversion and lowered investment demand,” said Ai Group Head of Policy, Peter Burn.

“In terms of the outlook, conditions look more fragile than they have for some time with new orders dropping sharply into negative territory with particular weakness in the pipelines of new work in the commercial and apartment sectors on a nationwide basis.”

Despite the grim outlook, the house building sub sector has continued trending upwards and remaining in the expansion phase, with the index climbing 0.3 points to 53.2.

"Home building activity has recorded its fourth consecutive month of growth in March providing further evidence that the market started the year off looking up,” said HIA Economist, Angela Lillicrap.

“Restrictions on trade have impacted the house building new orders index which contracted further in March. Consumers often delay purchasing decisions during times of economic uncertainty.”

All other sub sectors unfortunately stayed in the red, with the apartment sub sector remaining the weakest (down 1.5 points to 31.9). Commercial construction recorded a further drop of 1.6 points to 35.1, while engineering construction eased slightly - notching a 2.0 point increase to 42.2.

The employment index also fell to its lowest level in eight months, down 0.5 points to 36.4, reflecting the current financial pressures felt right across the economy.

Cost pressures remain evident in the construction industry with the input prices index increasing by 2.8 points to 71.0 in March. The selling prices index dropped a further 3.6 points to 39.4, indicating that rising input costs are not, on average, being passed on to customers.

Growth in wages also continued in March, at a relatively similar rate to the previous month (up 0.6 points to 54.2).