Construction picks up pace in July

Following a slight dip in June, the construction industry has started to pick up pace as the new financial year kicks into gear, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) climbing up 1.4 points to 52.0 in July.

Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase.

Across the sub-sectors, engineering construction was the strongest performer, with its index going up 3.4 points to 54.4. The increase is consistent with reports of new tender wins and ongoing support from a strong and expanding pipeline of publicly funded major projects.

Commercial construction headed into the red for the first time in 14 months, falling 4.6 points to 49.1. In residential construction, house building activity remained stable (up 0.1 points to 50.3), while apartment building contracted for a fifth consecutive month and more sharply in July, diving 11.7 points down to 36.7.

The apartment sub-sector has now declined in 11 of the past 12 months following a cooling in new orders over the second half of 2017 and into 2018.

However, the overall new orders sub-index lifted slightly into mild positive territory in July (up 0.6 points to 50.3) after contracting for the first time in six months in June.

Employment and wages continued to experience growth, with the indexes rising to 50.8 and 67.2 respectively.

The input prices sub-index climbed 4.5 points to 82.2 in July, however the selling prices sub-index decreased 2.1 points to 51.4, suggesting that strong market competition and a low inflationary environment are limiting the passing on of cost pressures.

“A stronger showing from the engineering construction sub-sector outweighed a sharp fall in apartment building activity and broadly stable levels of activity in both house building and commercial construction in July,” said Ai Group Head of Policy, Peter Burn.

“To date there has been a very orderly retreat from historically high levels of apartment-related activity.

“The overall resilience of the construction sector will be tested if the lower levels of activity and new orders for the apartment sub-sector continue into the months ahead.”