Employment plunges to new low

The Australian Industry (Ai) Group and Housing Industry Association's (HIA) Australian Performance of Construction Index (Australian PCI) fell by 3.2 points to 43.3 in October, as activity across the construction sector contracts for a fifth straight month.

Readings below 50 indicate contraction in activity, with lower results indicating a stronger rate of contraction.

The employment index, in particular, suffered a 12.7-point plunge to 42.2 in October, its lowest level since July 2020.

All four sub sectors (housing, apartment, commercial and engineering) were also in contraction in October. This is the first time all sectors have declined in the Australian PCI since August 2021.

On a more positive note, input price pressures have eased slightly and supplier deliveries improved, indicating some softening in supply chain constraints, the report indicated.

“Economic uncertainty and several months of interest rate rises are clearly impacting the construction sector and particularly the residential subsectors,” said Ai Group Chief Policy Advisor, Peter Burn.  

“Lending data from the ABS show a continuing reduction in new loans for home buyers compared with the much higher levels seen over the period of exceptionally low interest rates.

“With the Australian PCI new orders indicator showing a further decline of new orders and with the further rate rise announced this week and with more rate rises foreshadowed, further declines in construction activity appear likely over coming months.”

HIA Senior Economist, Nicholas Ward, said interest rate rises are starting to take effect.

“Rate hikes, combined with builders' focus on completing the pipeline of existing work, have seen new sales materially weaken in recent months,” he said.

“It will be some time before the full effect of rate hikes is evident in terms of reduced capacity utilisation and reduced cost pressures, because the pipeline to work through is so large.”

Out of the four sub sectors, engineering and commercial construction suffered the biggest drops, falling up to 14.7 points to sit in contraction territory. House building, which flourished for a while when government incentives were still on offer, is now the furthest in contraction at 33.3 points.

While input prices are still elevated, the index has softened this month to 83.7. Selling prices now sits at 77.1 points.

Capacity utilisation fell slightly to 82.8 but remains elevated as it has been since the start of 2021.