Construction remains stable

The construction industry continued its expansion in April albeit at a slower pace, with the latest Australian Performance of Construction Index (Australian PCI), released monthly by the Australian Industry (Ai) Group and Housing Industry Association (HIA), dropping marginally by 0.6 points to 55.9 last month.

This indicates a third consecutive month of expansion in activity across the industry following a COVID-19 induced slump over December and January. Readings above 50 indicate expansion in activity, with higher results indicating a faster expansion.

All four construction sectors – housing, apartments, commercial and engineering – continued to expand in April. However, the high rates of growth seen in previous months eased, particularly in the commercial sector, which dropped 4.6 points to 58.7.

New orders hiked slightly from last month, rising by 2.9 points to 58.6. However, interest rate rises and ongoing price pressures will likely slow demand in the market, especially for new houses, said Ai Group Chief Policy Advisor, Peter Burn.

“The rise in interest rates announced recently by the Reserve Bank and the further rises foreshadowed can be expected to ease demand growth somewhat particularly in the residential sectors,” he said.

“However, with both the federal and state governments adding to infrastructure pipelines, the ability of the industry to meet still higher levels of infrastructure activity will depend critically on the supply of skilled labour, including from abroad, and on the success of efforts to repair disrupted supply chains.”

Escalating input costs affected builders more urgently across April (up 0.6 points to 94.4), and the effects are expected to be ongoing. Supplier deliveries is in contraction but eased slightly by 1.7 points in April to 44.9.

“Supply issues will remain the salient constraint on builders this year, with the latest data continuing to reveal the magnitude of the input price pressures Australian home builders have been facing,” said HIA Economist, Tom Devitt.

The employment index is sitting comfortably in the expansion phase but dropped by 5.1 points in April to 61. Wages continued to grow (up 1.3 points to 77.9), reflecting the investment builders are putting in to securing good talent in the industry.

Capacity utilisation in the sector reached a series high of 86 per cent, having been elevated for much of 2021 and 2022.