Construction Rebounds Across Australia

The national construction industry expanded in August after declining or remaining stable over the previous nine months, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) increasing by 6.7 points to 53.8.

The rebound in the Australian PCI was driven by a solid improvement in the new orders sub-index, which returned to growth for the first time in five months. Industry conditions were further supported by the first expansion in the activity sub-index in 10 months and an upturn in employment. Supplier deliveries, however, fell for a fifth consecutive month.

Of the four construction sub-sectors, apartments building was again the strongest performer, if at a slower pace than July's 11-month high. House building also expanded after stabilising in July, while commercial construction expanded solidly after nine months in contraction. In contrast, engineering construction remained in negative territory for a 14th month amid the ongoing decline in mining-related investment.

Ai Group Head of Policy, Peter Burn, said, "Continued strength in the residential sub-sectors and a lift in conditions in commercial construction underwrote the welcome return to expansion in the national construction sector during August. The positive news from these sub-sectors was sufficiently strong to outweigh the entrenched contraction in engineering construction associated with the winding-down in mining-related projects.

"Conditions in commercial construction are likely to be critical to the strength of the overall construction industry in coming months, with residential building already at high levels and weakness in engineering construction likely to continue for some time. Encouragingly, new orders lifted for all four sub-sectors in August."HIA Chief Economist Harley Dale, "There is a breadth to the healthier outcomes evident for the August Australian PCI that can be viewed with cautious optimism. The results for both the detached house and apartment sub-sectors reinforce the important contribution that new home construction continues to make to Australia's economic growth. New housing really has been the king-maker of the domestic Australian economy. A healthy August update for commercial construction is encouraging, but needs to be sustained. As new housing activity remains strong rather than achieving further growth, commercial construction and infrastructure investment needs to pick up the baton. Some economic reform wouldn't go astray either."Australian PCI - Key Findings for August:

• The Ai Group/HIA Australian Performance of Construction Index expanded in August for the first time since October 2014, rising 6.7 points to 53.8.
• After all four sub-indexes contracted in July, three returned to expansion in August: construction activity; new orders; and employment deliveries spent a fifth month in contraction.
• In residential construction, apartment building activity remained solid on the back of July's 11-month high, while house building expanded from July's stability.
• While engineering construction activity continued to contract, if at a slightly slower rate than in July, commercial construction returned to growth.
• Growth in the wages sub-index continued in August after its seasonal spike in July. Growth in input costs eased slightly but pressures on profits remain intense with the wide gap remaining between the wages and input sub-indexes and the selling prices sub-index, which was broadly unchanged at 48.0.