Construction bounces back in February

Following a slump over the December/January period, the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by 7.5 points to 53.4 in February, indicating a recovery in activity across the construction sector.

Australian Industry (Ai) Group Chief Policy Advisor, Peter Burn, said the COVID-19 Omicron peak over the holiday period drove construction activity to recent lows, but conditions have since bounced back to more normal levels.

“Employment grew and there was a healthy pick-up in new orders across the construction sector,” he said.

“Ongoing inflationary pressures were evident with cost rises for inputs and wages growth remaining elevated and selling prices also rising on the back of solid demand.

“With capacity utilisation at very high levels, employers from across the construction sector reported ongoing difficulties in filling positions particularly for skilled labour. These conditions, together with the rebound of new orders suggest further inflationary pressures in the period ahead.”

As business conditions return to normal and lockdowns become a thing of the past, the activity indexes for all four sub sectors in the Australian PCI® have rebounded to much healthier levels.

House building went up 18.3 points to 58.3, while commercial construction increased by 19.3 points to 58.8. Engineering construction was up 6.3 points to 56.3, while the index for apartments lifted into stability in February (up 28.6 points to 50.0) - a stark contrast to the deep contraction in the summer period.

HIA Economist, Tom Devitt, said there are no indications of a slowdown in home building activity any time soon.

“Home building bounced back as the Omicron wave abated. New home sales are exceptionally strong, up around levels usually only seen during periods of direct stimulus, on the back of the pandemic trend towards lower density housing,” he said.

“The Reserve Bank has also just reiterated its ‘patient’ stance with respect to any future increases in its benchmark cash rate, as it waits for supply chain issues to more fully play out.

“The first signs of weakness will be seen in terms of access to finance, especially for first home buyers, as house price growth slows in the established market.

“This year, the salient constraint on builders will remain the price and availability of land, labour and materials, rather than any absence of demand.”

Elsewhere, the input prices index is remaining at an extremely elevated state, as it sits steady at 95.6. The selling prices index also marked 12 months of elevated readings, moving 5.4 points higher to 86.8 points – a record high for this pricing series (which commenced in 2008). This shows builders are increasingly passing on the elevated input costs to customers.

The average wages index creeped up 1.5 points to 77.5 following six months of increased wages pressures, while the employment index moderated slightly by 2.2 points to 54.3.