Mixed Property Data Points To Construction Confusion

Apartment construction activity contracted further in May, marking its steepest decline since August 2013 with further weakness to come as new orders fell for a third consecutive month, according to the latest Performance of Construction Index.

But the new data comes as approvals for new apartments and townhouses defied expectations to surge 3 per cent in April driven by an 8.7 per cent rise in private sector dwellings excluding houses, according to Australian Bureau of Statistics figures released recently.

Ai Group/Housing Industry Association's Performance of Construction Index reported an eight point decline to reach 41.5 where a reading of 50 represents expansion. New orders for apartments - a leading indicator for growth - lost ground, declining at the second sharpest rate since February 2015 according to the report.

Regardless of varying reports, consistent underlying commentary paints a picture of a construction surge that is past its peak.

Ai Group Head of Policy, Peter Burn, said the Australian PCI results reflected lower orders across the board.

Diffusion index[/caption] Graph: New orders by sector[/caption]"Despite a return to expansion in the house-building sub-sector, the broader construction industry missed a gear in May with declines in the apartment building and commercial and engineering construction sub-sectors. With new orders lower across all parts of the industry in May, the immediate outlook is for further weakness. There are, nevertheless, some emerging signs of a pick-up in non-mining related engineering construction with a growing pipeline of infrastructure projects," Dr Burn said.

HIA Chief Economist Harley Dale described the changing circumstances of the construction industry.

"The word 'transition' is frequently used in describing the current circumstances of the Australian economy - this description is most relevant to the construction industry. The Australian PCI accurately signals there is some way to go in terms of the transition of Australia's construction industry away from resource-intensive projects. Residential construction remains strong, even allowing for the sharp monthly dip in the apartment sub-index of the report in May. That is a timely reminder of the important support the residential construction industry continues to provide the broader domestic economy in 2016," Dr Dale said.

Source: PCI[/caption]Construction employment also declined in May after a return to growth in the previous month. The employment sub-index fell by 5.5 points to 49.0 points, indicating mild contraction in the month signalling the third month of decline in employment in 2016 to date, with soft levels of aggregate demand constraining job creation across the industry.

Australian PCI® - Key Findings for May:

•  In contrast, house building solidly returned to growth after three months in contraction (up 12.4 points to 57.6).
• Engineering construction turned down in May (down 11.2 points to 43.4) following April's return to growth, while commercial construction remained largely unchanged in negative territory at 44.7 points.
• The key construction activity sub-index fell below 50 points in May (down 3.3 points to 47.7) after showing signs of a mild recovery in April, while new orders lost ground (down 6.1 points to 42.9), declining at its second sharpest rate since February 2015.
• The employment sub-index declined in May (down 5.5 points to 49.0) to reverse April's shift to growth.
• Growth in the wages sub-index continued in May, albeit at a slower rate (down 3.4 points to 57.4), while the input prices sub-index remained elevated (down 2.7 points to 67.8).
• The selling prices sub-index increased by 6.4 points to achieve stability at 50.0 points, amid intense competition for new work in a tight market.