Australian construction sector ends 2018 with weaker demand

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) dropped 1.9 points to 42.6 in December, indicating a fourth consecutive month of decline.

Ai Group head of policy, Peter Burn, said sharp falls in residential building activity together with a further drop in commercial construction and a slight dip in engineering construction saw construction sector performance in December record its sharpest monthly contraction since mid-2013.

“Activity and new orders were down across the four sub-sectors with the apartment sub-sector continuing as the biggest drag on performance.

“With construction accounting for close to 10 per cent of both GDP and employment, the downturn in this sector will weigh on the overall economy.

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“That said, levels of construction activity remain respectable by historical standards with infrastructure work in particular likely to continue to account for a significant proportion of overall activity,” said Burn.

“Despite the falls in activity and new orders, employment held up well in December as constructors held onto their staff in the face of growing skill shortages,” he said.

HIA acting principal economist, Geordan Murray, said the Australian PCI finished the year on a soft note with all sectors of the construction industry recording declining levels of activity.

Australian PCI – Key Findings for December:

  • The activity index in the Australian PCI contracted for a third month and at its sharpest rate in five and a half years (down 5.9 points to 35.7). This was associated with a continued drop in new orders (down 4.8 points to 41.0) and a reduction in deliveries from suppliers (up 0.5 points to 48.4).
  • Labour market conditions moved closer to stability with the employment index increasing by 5.1 points to 49.4, indicating a broadly unchanged level of total construction employment.
  • Across the four construction sectors in the Australian PCI in December, apartment building was the weakest performing sector, declining for a ninth month and at the sharpest rate since mid-2012 (down 2.7 points to 26.3). House building also fell further into negative territory (down 2.6 points to a six-year low of 35.4), while engineering construction fell into mild contraction for the first time in 22 months (down 2.6 points to 48.3). Commercial construction recorded a fifth month of decline (down 0.9 points to 45.0).
  • The input prices index remained elevated in December (down 1.1 points to 72.0), while growth in wages also continued (down 0.7 points to 60.9).
  • The selling prices index continued to contract in December, and at a steeper rate (down 6.5 points to 40.6), with the ongoing gap between the input and selling prices indices indicating that profit margins remain tight across the construction industry amid strong competition in securing work.

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