Australia’s Construction Sector Continues to Expand into 2018

Australia’s construction industry is holding strong against tumbling approvals and apartment market headwinds, experiencing its 12th consecutive month of growth – a promising start to 2018.

The Australian Industry Group and Housing Industry Association Australian Performance of Construction Index increased 1.5 points on the index to 54.3 in January, indicating growth at a slightly faster pace than in December .

The national composite index takes its scores on a weighted mix of activity, orders and new business, deliveries and employment in the sector. Readings above 50 points indicate construction activity is “generally expanding”, while a mark below 50 represents a decline. The greater the distance from 50 on the Australian PCI, the stronger the increase in activity.

Related reading: Australian Construction Outlook Forecasts Major Growth by 2019

The construction industry is classified under four sub-sections on the index – commercial construction, house building, apartment building and engineering construction – which all experienced expansion in January.

Commercial construction was the strongest performing area of industry activity in January, up 7.4 points to 58.9, while house building activity continued to expand but moderated for a second month to 2.5 points, ranking 52 on the index.

Apartment building grew by an unchanged level from December, scoring 50.7 index points, and engineering construction expanded but at a slightly decelerated rate 3.4 points to score 53.5 on the index.

HIA senior economist Shane Garrett said that even though new home building activity has retreated from its peak, it still remained very elevated by historic standards.

“A considerable proportion of these new apartments have been delivered onto the rental market – helping to bring rental inflation to a 24-year low during 2017.

“This is good news for those who rent rather than own their homes," Garrett said.

The employment sub-index accelerated to its fastest pace in six months (up 3.3 points to 58.0), while capacity utilisation hit a record high of 83.4 per cent – its highest since at least 2008 when this data series began.

“While new orders only lifted modestly in January, further employment growth is a strong sign of an industry still confident over its near-term outlook,” Ai Group head of policy Peter Burn said.

“The pace of wages growth lifted again in January whereas non-wage costs also rose but at a less frantic pace than in recent months.

“Selling prices rose slightly, pointing to continued pressure on margins."