Construction downturn eases slightly in May

Australia’s construction sector suffered another blow in May due to ongoing COVID-19 activity restrictions which led to overall declines in sentiment, spending and investment, according to a recent industry report.

The Australian Industry (Ai) Group and Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI) rose by 3.3 points to 24.9 in May, after a record plunge in April following a raft of restrictions introduced in the past few months to curb the spread of COVID-19. Readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of contraction.

According to the latest report, new orders, new contract tendering opportunities and customer inquiries have largely dried up across all sectors, with survey participants mostly gloomy about the current situation.

Several pointed to the JobKeeper scheme as the only thing keeping their businesses and workforce afloat in May.

“In these conditions, monetary and fiscal measures are playing critical roles in supporting jobs and wages and in trying to get work pipelines flowing", said Ai Group Head of Policy, Peter Burn.

“At this stage there are very few signs of a rebound and governments will need to be ready to extend existing measures and further commit to large and small-scale infrastructure projects.”

Despite the construction industry not being subject to mandatory shut-down requirements like many other industries, the construction activity index remains firmly in negative territory, up 3.3 points to 21.3 in May. New orders is up 7.3 points to 23.0, but the continued contraction meant new projects, new contract tendering opportunities and customer inquiries have largely dried up.

Across the four construction sub sectors, all reported slight easing in contraction with the exception of engineering construction.

Housing construction was up 5.4 points to 20.2, apartment construction up 8.7 points to 21.6, and commercial construction was up 6.4 points to 18.1. However, the engineering construction index fell by 2.3 points to a new record low of 23.8.

HIA Chief Economist, Tim Reardon, said home building will continue to contract even as the economy opens up again.

“The lags involved in the housing industry between sale and construction will see the contraction of building work accelerate downwards in the second half of the year. This deterioration will continue into 2021 as the restrictions on migration cause a further deterioration in market conditions," he said.

However, the HIA is hopeful the new HomeBuilder package introduced by the Federal Government will fast track some house building activities and keep tradies employed.

“The housing industry directly engages more than one million people – builders, trade contractors, designers, professional service providers and others,” said HIA Managing Director, Graham Wolfe.

“It provides jobs for many thousands more in the manufacturing and retail sectors, which supply the materials, products, white goods and furnishings that go into our homes.

“This incentive will help to address the projected decline in housing activity over the next 12 months."

With input prices remaining high (down 0.6 points to 64.7) and selling prices remaining low (up 2.2 points to 28.4), profit margins continue to be squeezed for businesses as competition intensifies for remaining larger projects.

The average wages index - up 3.3 points to 47.0, and employment index- up 3.5 points to 29.1, partly recovered in May after precipitous falls in April, but both were still indicating further declines in paid work in May.