No relief for construction sector

September’s Australian Performance of Construction Index (Australian PCI) continue to paint a grim picture for the local construction industry as it dropped another 2.0 points from August to 42.6.

The index, adjusted monthly by the Australian Industry Group and Housing Industry Association, recorded a 13th consecutive month of contraction, with readings below 50 indicating contraction in activity.

All four construction sectors in the Australian PCI contracted in September, including the usually strong performing engineering construction sub-sector. Apartment building is still the weakest performing sector, now in its 18th straight month of decline, down 0.9 points to 33.0. The decline in house building also continued in September albeit at a slower rate - up 2.3 points to 46.2.

Commercial construction declined for a 14th month - unchanged at 46.7- while engineering construction fell at its sharpest rate in over six years - down 3.0 points to 39.3- with activity continuing to be constrained by a weak uptake of new work.

The new order index fell 1.1 points to 42.2 while supplier deliveries was down 4.2 points to 44.3.

Job declines continued in September but the rate of decline has moderated slightly, up 0.4 points to 46.2.

Input cost has moderated in September, with the index falling 4.2 points to 65.0 but remain relatively high due to elevated energy costs and supplier price rises. Growth in wages also continued, although at a more moderate rate (down 5.8 points to 55.8).

The selling prices index continued to contract in September, albeit at a slower rate (up 3.8 points to 41.0), indicating that rising input prices and other costs are not, on average, being passed on to customers.

"The signs are less encouraging in the rest of the industry with the overall activity and new orders indexes falling again in September and building and construction businesses are feeling the pinch between soft selling prices and continuing rises in input and wage costs,” said Ai Group Head of Policy, Peter Burn.

“In view of these generally weak conditions, the case for an acceleration in infrastructure spending is clearly strengthening.”

According to HIA Economist, Tom Devitt, recent interest rate cuts have contributed to the stabilisation of home prices, following persistent declines over the last couple of years.

“This is a sign that confidence in the housing market has improved although the volume of property transactions remains low,” he said.

“We will need to see that improved confidence translate to greater numbers of active market participants in order to halt the contraction in residential building.”