Construction index reaches record low

Although the construction sector has powered through the COVID-19 pandemic with work in the industry deemed ‘essential’, the sector was not able to escape a grim outlook due to very little new work in the pipeline.

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) dropped by 16.3 points to 21.6 in April, which was the weakest overall performance for the industry since the survey began in September 2005. Readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease.

The large drop from March to April was also the index’s largest month-on-month decline in its history, even exceeding that recorded during the global financial crisis.

April also saw key indices including activity, new orders and employment fall at their sharpest rates in 15 years, caused by slow activity in the sector, as well as projects being cancelled or put on hold.

The activity index fell by 21.1 points to 18.0 while new orders plummeted by 19.7 points to 15.7. The employment index also nosedived to an all-time low of 25.6.

"The fallout from COVID-19 wreaked havoc on the already weak domestic construction sector in April,” said Ai Group Head of Policy, Peter Burn.

“Two particularly disconcerting indications are the precipitous fall in new orders and the first ever indication of a monthly fall in nominal wages (since 2008 when we started compiling this series),” Burn added.

“It is now critical that the very welcome assistance measures provided by federal, state and territory governments are backed up with an orderly and safe easing of the restrictions that are hindering a return to work.”

Across the four sub sectors, apartment building did the worst in April, as it fell 4.5 points to 22.1. House building, which has enjoyed several months of growth fell to 37.1 amid reports of lower home sales, cancelled contracts and a lack of enquiries.

"The positive momentum that existed in the housing market has been disrupted as consumer confidence started to evaporate from March,” said HIA Chief Economist, Tim Reardon.

“The speed with which the industry is likely to bounce back, especially apartment markets in the larger capitals, will depend very much on the outlook for overseas migration," Reardon said.

Commercial construction contracted at its sharpest rate since early 2016, falling 4.3 points to 24.5, with reports of further falls in demand. The index for engineering construction was down 1.1 points to 36.6, only slightly steeper than in March.

The input prices index decreased by 5.7 points to 65.3 in April, indicating a slight moderation in cost pressures during the month. However, the selling prices index fell 13.2 points to 26.2, signalling the sharpest fall in the index since the survey began. This indicates rising costs are largely being absorbed by builders, squeezing already slim margins.

The average wages index fell by 10.5 points to 43.7 in April, representing the first decline recorded since the series began in January 2008.