Construction downturn eases in Feb

After a slow start to the year, the Australian construction industry is inching its way back up towards positive territory, however contraction in activity continues across the four major sub sectors.

The latest construction activity report by Australian Industry (Ai) Group /Housing Industry Association (HIA) shows the Performance of Construction Index (PCI) creeping up by 0.7 per cent to 43.8 in February, with readings below 50 indicating a contraction and readings above 50 signalling an expansion.

All four sub sectors are in the red, with no immediate relief to be seen in the ever-slowing residential construction sector. House building dropped 0.6 points to 35.2 and apartment building remains unchanged, up 0.2 points to 28.6.

Commercial construction fell further into negative territory (down 1.2 points to 42.2) while engineering construction declined for a third month (down 1.4 points to 43.9) due to a shallower pool of new work to replace completed and more advanced projects.

The new orders index fell a further 0.9 points to 43.2, indicating sluggish demand for more construction work.

“In large part, the drop in residential activity is a further and to-date orderly wind-back from the historically high levels of activity,” said Ai Group Head of Policy, Peter Burn.

“The fall in engineering construction is shallower and less entrenched than is the case with the residential sub-sectors but is also a pull-back from elevated levels.

“With new orders also lower in February the construction downturn looks likely to continue over coming months.

“On the positive side, there is clearly capacity to lift construction activity if policy makers are looking to stimulate the slowing economy.”

HIA Economist, Tom Devitt, said the rate at which the pipeline of building work is shrinking is “concerning”.

“Residential building has been pivotal in driving activity in the rest of the economy for the past five years,” he said.

“Over the coming years as home building activity slows, the sector will be reliant on the resilience of the broader economy.”

Employment in the industry also contracted further (up 1.6 points to 46), however wages remain elevated (down 4.1 points to 59.6) proving difficulty in sourcing skilled workers is keeping overall wage growth relatively high.