Construction picks up around the country except Victoria

The monthly Australian Performance of Construction Index (Australian PCI), adjusted by the Australian Industry Group and Housing Industry Association, increased by 7.3 points to 45.2 in September, indicating improving conditions in the sector albeit still in contraction.

Readings below 50 points indicate contraction in activity, with lower results indicating a faster rate of contraction. On the other hand, readings above 50 indicate growth.

The results across the country have been a mixed bag, with Victoria being the worst performer, perhaps unsurprisingly given the strict lockdown measures.

More significant improvements were recorded in ‘virus-free’ states such as South Australia and Western Australia, while PCI results in Victoria sank to extremely low levels similar to April and May's record lows.

Ai Group Head of Policy, Peter Burn, said despite the construction sector remaining in contraction, there are gathering signs of a tentative turnaround.

“Indexes for each of the sub sectors improved with house building activity entering into positive territory for the first time since February,” he said.

“In a further encouraging sign, the pace of decline in employment eased again in September.

“If hopes for easing of the Victorian restrictions and for further fiscal support in the Federal Budget are realised, the construction sector should be in a position to contribute to overall growth into 2021.”

The new orders index recovered by 10.6 points to 45.7 last month, indicating a further but milder decline.

Across the sub sectors, house building activity is back in the black for the first time in months - up 19.5 points to 56.9, while the new orders index for the housing sector increased by 17.3 points to 55.2. This indicates increasing demand for new houses, possibly as a result of Government initiatives such as HomeBuilder.

Apartment building activity continued to slump but at a much milder pace, up 20.5 points to 43.3.

“There is a stark divergence between the conditions facing detached house builders and the conditions apartment builders face,” said HIA Economist, Angela Lillicrap.

“Activity in the apartment segment is likely to remain constrained until there is greater certainty about the pathway for overseas migration to return.”

Commercial construction activity also slowed, albeit at a milder pace (up 13.5 points to 45.8).

While engineering construction activity improved slightly, with the index picking up by 2.5 points to 29.5, it remains close to historic lows.

The index for input prices jumped by a further 4.7 points to 72.0 in September, reaching its highest level since January in a volatile year to date. The selling prices index recovered slightly (up 0.6 points to 43.0) but remains weak due to reduced demand across most parts of construction.

The average wages index recovered by 2.7 points to 56.2 and the employment index increased by 3.1 points to 49.2. Survey participants continued to stress the importance of the JobKeeper and Apprentice Support schemes to employment in September.