Construction index slips further in November

The Australian Performance of Construction Index (Australian PCI) fell by 1.9 points to 44.5 in November, with the sluggish housing market pulling the index down further.

The index is adjusted monthly by the Australian Industry Group/Housing Industry Association and is an indicator of the performance of the local construction sector, with readings above 50 indicating expansion, and under indicating contraction.

“A further lift in infrastructure activity was not able to offset steeper falls in residential construction sub-sectors in November,” said Ai Group Head of Policy, Dr Peter Burn.

“Across the construction sector as a whole, activity, employment and new orders all fell in the month which was the third consecutive month of contraction in this important part of the economy.”

According to the report, engineering construction expanded in November at 54 points albeit at a slower rate; while house, apartment, and commercial construction contracted further and at faster rates (sitting at 40.1, 31 and 47 points respectively).

“While there are clear positives in the sector – particularly in infrastructure – the industry and the broader economy has become more vulnerable to a broader slowdown,” Dr Burn said.

“In this environment, the potential impacts of adverse tax changes on residential building need to be considered very carefully in the lead-up to the federal election.”

HIA Acting Principal Economist, Geordan Murray said the softening in house building activities is expected to continue well into next year considering the roadblocks in place including tightening in credit conditions.

“The contraction in new orders suggests that the drag on economic growth from falling levels of home building could become more significant over the year ahead," Murray said.

Across the board, most other indexes experienced contractions including new orders, employment, supplier deliveries and selling prices. However, the input prices index remained elevated in November (up 0.7 points to 73.1), amid robust demand for construction materials, elevated energy input costs and supplier price hikes related to strength in commodity prices.

Growth in wages also continued to climb and at a faster rate (up 1.2 points to 61.6), with an elevated level of publicly-funded projects increasing skill shortages in occupations central to infrastructure activity.