Construction sector bounces back

Following a devastating run of activity contractions in July and August, the construction sector is clawing its way back into expansion as the latest Australian Performance of Construction Index (PCI) went up 14.9 points to 53.3 in September.

The index is adjusted every month by the Australian Industry (Ai) Group and Housing Industry Association (HIA), with readings above 50 indicating expansion. The higher the reading, the stronger the expansion.

The report stated that the wind back of restrictions in NSW throughout September was the key reason behind the modest expansion and improvement in several indices including activity, new orders, employment and supplier deliveries. However, Victoria’s harsh restrictions and border closures continue to begatively impact the sector, the report added.

“The bounce in the Australian PCI in September was largely due to many fewer builders and constructors reporting further falls in activity after the clear majority saw activity slump in August,” says Ai Group Head of Policy, Peter Burn.

“Across the sector, the activity index for September still only reached 49.8 points with as many businesses reporting improved activity as reported further falls.”

Infrastructure work around the country continue to be the backbone of the building sector, with engineering construction leading the way with new orders and activity levels. While all sub sectors enjoyed improvements to varying degrees in September, engineering construction saw the biggest leap of 30.2 points to 61.8.

Apartment construction was up 17.9 points to 50.0 to sit right at the line for expansion.

However, housing and commercial construction remained in contraction with housing recording a lift of 3.2 points to 39.6 while commercial was up 9.9 points to 41.2.

"Home building activity declined for the second consecutive month. This reflects the ongoing impact of lockdowns, especially in Victoria,” says HIA Economist, Tom Devitt.

“There's a significant pipeline of work yet to be completed (or even commenced) and still a healthy inflow of new work entering the pipeline.”

He added as lockdowns continue to ease over the next few months, building activity will go right up and builders' confidence will improve.

“This should ensure a rapid bounce back in activity once home building is allowed to commence again.” Devitt says.

The index for new orders rose sharply, up 22.5 points to 58.9 to expansion in September, with new orders for engineering projects reaching a record high at 70.0 points. Supplier deliveries climbed by 6.6 points but remained in contraction at 42.6 points, as builders across all sectors and locations reported delivery delays and high freight prices.

The index for input prices rose in September (up 6.6 points to 98.4) similar to the record high reported in June 2021, while the index for selling prices increased by 9.2 points to 78.8.

This comes as builders nationwide continue to report very high prices from suppliers and importers, with more builders saying they need to pass on these cost increases to their customers, the September Australian PCI report stated.

The employment index accelerated in September, up 8.0 points to 57.0, reversing August’s sharp decline, with some builders indicated that a pipeline of work carried over from HomeBuilder required the recruitment of more staff.

The wages index rose by 8.2 points to 76.6 as builders continue to report wage pressures arising from skill shortages.