Construction sector showing signs of recovery

The Australian Performance of Construction Index (Australian PCI) rose by 10.6 points to 35.5 in June, indicating a slight easing in the sector’s downturn, however firmly remaining in contraction territory.

According to the Australian Industry (Ai) Group and the Housing Industry Association (HIA), which adjust the PCI on a monthly basis, all four sectors reported increases in customer queries and requests for quotes in June but these are not yet translating into solid commitments for future work.

The new orders index has improved from recent lows but still sits firmly negative at 32.8 points.

“While continuing to contract, the pace of decline in the construction sector eased in June following the sharp falls in April and May when activity levels and new orders collapsed in the wake of restrictions and heightened uncertainty,” said Ai Group Head of Policy, Peter Burn.

“Nevertheless, construction activity, employment and new orders were all lower in June suggesting that it will be some time yet before the industry recovers.”

Dr Burn added governments need to shift their focus on to infrastructure investment and ramp up activities in that area.

“Beyond the immediate issues, considerable uncertainties remain over the longer-term impacts of the pandemic on the demand for commercial buildings and on net overseas migration which for many years has been an important driver of residential building activity,” he said.

“In this context, infrastructure investment assumes particular importance and there is clearly capacity for governments to oversee significant expansions of existing programs.”

All four sub sector indices improved in June but remained firmly negative. Commercial construction rose by 8.5 points to 26.6 while engineering construction recorded an increase of 8.3 points to 32.1.

The residential sector painted a better picture with house building up by 19.4 points to 39.6, and apartment building up 23.2 points to 44.8.

“The easing of the rate of decline in building activity and new orders – for both houses and apartments – is a positive development following the return of potential homebuyers to the market, plus recent government support and incentives,” said HIA Economist, Tom Devitt.

“This should provide a valuable buffer, especially in states like WA where building pipelines were dangerously low.

“Even if the worst is now behind us, the lags involved mean the impact of the last few months will continue to weigh on construction activity in the second half of the year, and beyond for as long as migration rates and the broader economy remain below pre-pandemic levels.”

In other indices, the input prices index fell by 2.6 points to 62.1, while selling prices increased by 11.8 points to 40.2 in June after hitting recent lows in April.

The average wages index slid 2.7 points to 44.3 but the employment index partly recovered in June, going up 11.3 points to 40.4, after precipitous falls in April. This indicates a continued decline in work but at a slower pace, with many survey participants highlighting the importance of support from the JobKeeper and Apprentice Support schemes.