House building gains momentum
Housing sector experienced another lift in January as wider construction industry remained weakFollowing a lacklustre end to 2019, Australia’s construction sector has picked back up slightly in the New Year, largely thanks to a further lift in house building.
The January Australian Performance of Construction Index (Australian PCI), measured by the Australian Industry Group and Housing Industry Association, increased by 2.4 points to 41.3 in January.
While most of the sector is in contraction, the declines were less pronounced in January.
While both the activity and new orders indices were in contraction last month, they did so at a slower rate - up 5.8 points and 4.0 points respectively.
However, employment continued to fall, recording a 1.1 point drop to 41.7.
Of the four construction sectors in the Australian PCI, house building was again the best performing sector with activity indicating mild expansion from last month, up 1.0 point to 51.7.
"This is consistent with other leading indicators including new home sales and housing finance that suggest the market reached a gentle turning point in the middle of the year,” said HIA Economist, Angela Lillicrap.
“The return to house price growth is also boosting confidence in the housing market which is supportive of increased demand for housing in 2020.”
In contrast, apartment building remained firmly in negative territory (down 0.1 point to 37.0).
Engineering construction, traditionally the strongest sector has fallen for an eighth month, now sitting at 34.2 points. Commercial construction recorded an 18th month of contraction due to ongoing weakness in demand (down 1.1 points to 39.9).
The input prices index in January's Australian PCI points to rising cost pressures heading into 2020, climbing 8.2 points to 73.1 – its highest level in 12 months.
The selling prices index dropped a further 2.2 points to 45.8, with the wide gap between the price series suggesting an ongoing squeeze in profit margins for construction businesses.
Growth in wages also continued in January, with the average wages index increasing by 1.6 points to 58.7.
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