Outlook ‘Encouraging’ as Construction Index Catches Up

Supplies are in, employment is up and demand on the rise as construction parameters improve from the weakest point in history.

Construction industry conditions in all mainland states are improving, according to the performance of construction index for October by the Australian Industry Group and Housing Industry Association.

New orders for house building are at a record high and activity for residential construction is up in all states except Victoria, where declines are slowing.

This surge is not enough, however, to outweigh depressed conditions in other construction sectors—particularly commercial building.

Deliveries of building supplies have also caught up after freight disruptions in past months, and which were at a record low.

Meanwhile, employment is also experiencing a mild recovery, following a loss of 22,400 jobs in the six months to August, according to the Australian Bureau of Statistics.

These results broadly reflect the status and timing of Covid-19 restrictions in each state, which saw the index plummet to all-time lows in April.

Australian Performance of Construction Index

_{^{^ Source: Australian PCI, seasonally adjusted}}

A PCI result higher than 50 shows a construction sector expanding while under 50 contracting, and the distance from 50 indicates how severe the change is.

Ai Group head of policy Peter Burn said with activity restrictions in Victoria now easing and new orders rising strongly across the country, the near-term outlook is encouraging .

“The expansion of the Australian construction industry in October was driven by further strength in house building and smaller declines in the apartment and engineering construction sectors while commercial building fell further behind.”

Industry comparison

_{^{^ Source: Australian PCI, trend (capacity is seasonally adjusted)}}

“There is a note of caution in that the improvement in the sector and elsewhere in the economy is still heavily reliant on wage and apprentice support measures and spurred along by exceptionally low interest rates,” Burn said.

Construction activity overall is stable in Western Australia and South Australia after a strong recovery in September, while NSW and Queensland are into a mild expansion; Victoria’s activity is improving but remains in contraction.

HIA executive director, industry policy Geordan Murray said the improvement in demand for detached housing has been instrumental in lifting the index into expansionary territory for the first time since 2018.

“The lift in the Australian PCI housing new orders sub-index in September and October implies that we should see further pick-up in building approvals over coming months with a lift in on-site building activity following soon after.

“These are positive signs that policy settings are working to generate employment throughout the initial phase of the economic recovery.”