Construction slumps to lowest point in six years

Australia’s building industry has ended 2019 on a low note, with the Australian Performance of Construction Index (PCI) falling to a new low of 38.9 in December, a 1.1 point difference from November 2019 numbers.

The Australian PCI is adjusted monthly by the Australian Industry Group and Housing Industry Association to reflect the overall state of the construction industry in Australia.

Any readings below 50 indicates contraction while readings above 50 reflects growth, with the distance from 50 indicating strength of the decline or expansion.

Of the four construction sectors in the Australian PCI, house building again came out tops with its index back in the black for the first time since 2018 (up 0.8 points to 50.8). In contrast, apartment building remained firmly in negative territory (up 0.9 points to 37.4).

Across the major project sectors, engineering construction fell for a seventh month and at its sharpest rate in just over a decade (down 2.7 points to 29.5) while commercial construction recorded a 17th month of contraction, with demand conditions remaining patchy across key industrial and commercial property categories (down 1.5 points to 41.3).

“While the quantity of infrastructure projects in the pipeline and the recent announcement of a bring forward of some projects provides some comfort, the broader industry is undergoing a difficult period of adjustment,” said Ai Group Head of Policy, Peter Burn.

“This is flowing through to other sectors – particularly to industries supplying machinery and equipment and building and construction materials.

“There is now a clear danger of a self-reinforcing downturn across significant parts of the domestic economy.”

New orders continued to decline (down 0.6 points to 36.9), and construction businesses continued to reduce their supplier deliveries (down 2.7 points to 41.4) in response to weak demand. Employment also continued to decline, albeit at a slower rate (up 3.4 points to 42.8).

The input prices index remained elevated in December (down 2.9 points to 64.9) while the selling prices index increased by 4.3 points to 48.0. The wide gap between these price series suggests profit margins remain tight for many construction businesses.