No slowing down for infrastructure construction

The month of October has seen overall building activity slip further into negative territory, according to the latest Australian Industry Group and Housing Industry Association Australian Performance of Construction Index (PCI).

Following 19 months of uninterrupted growth, activity in the construction sector contracted for the first time in September 2018 and slipped further down last month, recording a 2.9 point drop to 46.4 points.

Unsurprisingly, the housing sub sector ‘led the charge’ in the further decline.

“The longstanding wind-down of boom conditions in apartment building continued and was reinforced by further declines in the volume of work in the house building sector,” said Ai Group Head of Policy, Peter Burn.

“To date there has been an orderly retreat from boom conditions in the apartment sector but the outlook is now very sensitive to any further increases in borrowing costs and possible changes in tax policy settings."

The only ray of light is the engineering construction sector, which grew further and faster in October in trend terms (up 1.2 points to 58.8), playing an important counter-cyclical role and moderating the pace of job-loss across the broader industry, Burn added.

“Looking ahead, conditions look more fragile than they have for some time with new orders declining further into negative territory driven by weakness in the apartment and commercial construction sectors with flat-to-steady pipelines of new work for the rest of the industry," he said.

Across the other sectors in the Australian PCI, house building fell by 1.6 points to 44.8, commercial construction down 1.3 points to 45.6, and apartment building fell 1.7 points to 34.4.

HIA Acting Principal Economist, Geordan Murray, said the PCI reflects a weaker housing market caused by a tighter lending environment.

“Home prices in Melbourne and Sydney are easing and we are seeing fewer transactions. This is partly due to APRA's interventions in the mortgage market and partly due to lenders pre-empting the outcome of the Royal Commission,” he said.

“The economic environment that supported the expansion of residential building over the last few years has passed. The housing market has cooled and activity in the residential building sector is set to contract over the year ahead.”

In other findings, employment contracted for a third consecutive month, albeit at a slower rate, up 1.1 points to 48.0.  The input prices index remained elevated in October, down 3.7 points to 72.4; while growth in wages also continued, down 0.2 points to 60.4.