Construction index back in black

In some good news for the nation’s construction sector, activity in the industry has again moved back into the growth phase after two plus years of contraction, with housing construction mainly responsible for moving the needle.

The Australian Industry (Ai) Group and Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI) improved by 7.5 points to 52.7 in October, with readings above 50 indicating expansion in activity.

The Australian PCI indicated an improvement in industry conditions in all mainland states in October. Construction activity stabilised in WA and SA after a strong recovery in September (results well above 50 points), while NSW and Queensland moved into mild expansion.

Victoria’s activity index improved but remained in contraction, after an especially low result in September and the lowest month on record in May.

“With activity restrictions in Victoria now easing and new orders rising strongly across the country, the near-term outlook is encouraging,” said Ai Group Head of Policy, Peter Burn.

“There is a note of caution in that the improvement in the sector and elsewhere in the economy is still heavily reliant on wage and apprentice support measures and spurred along by exceptionally low interest rates.”

Activity improved in October across three of the four sectors in the Australian PCI, with only commercial construction activity declining (down 6.3 points to 39.5).

House building activity was up strongly in all states except Victoria, recording a 4.4 points jump to 61.3. Even in Victoria, the decline in house building slowed in the month.

"The improvement in demand for detached housing has been instrumental in lifting the Australian PCI into expansionary territory for the first time since 2018,” said HIA Executive Director for Industry Policy, Geordan Murray.  

“Low interest rates are combining with the HomeBuilder program and other fiscal stimulus measures to boost demand in this part of the market.”

The new orders index in October recovered by 9.8 points to 55.5, with new orders for house building surging to a record high. Builders in other sectors also reported more customer enquiries compared to the lows of recent months.

“The lift in the Australian PCI housing new orders sub-index in September and October implies that we should see further pick-up in building approvals over coming months with a lift in on-site building activity following soon after,” Murray said.

“These are positive signs that policy settings are working to generate employment throughout the initial phase of the economic recovery.”

The supplier deliveries index jumped sharply by 15.7 points to 58.8 after falling to a record low in May. Participants appear to be catching up on orders from suppliers after freight disruptions in past months.

The index for input prices increased by 2.5 points to 74.5 in October, climbing above its own long-run average (72.3 points). The selling prices index recovered to stability (up 7.4 points to 50.4) as demand for housing recovered in more locations.  

The average wages index increased by 3.0 points to 59.2 while the employment index climbed 1.8 points to 51.0. This is welcome news after total construction employment fell by 22,400 people (1.8 per cent) in the six months to August 2020, according to the ABS (Australian Bureau of Statistics).