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Australian PCI®: Construction decline eases in February 2020

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The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.4 points to 42.7 in February 2020, with further improvement in house building activity contributing to the industry’s milder rate of decline this month (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

Ai Group Head of Policy, Peter Burn, said: “A further lift in the house building sector during February (2020) partially offset sluggish conditions across the rest of the construction sector. In the apartment and commercial building sectors the pace of decline accelerated in February while engineering construction fell at a slower pace in the month. Construction sector employment declined again as builders struggled in the face of lower selling prices, rising wage and non-wage costs and a further drop in new orders. The return of growth in the house building sector is very welcome in these generally adverse conditions and the further rise in new orders in this part of the market suggests there are likely to be additional gains in the months ahead,” Dr Burn said.

HIA Economist, Angela Lillicrap, said: “House Building expanded at a slightly stronger pace in February (2020), which is consistent with other leading indicators that suggest the market reached a turning point during the second half of 2019. The ongoing growth in house prices will continue to boost confidence in the housing market. This, along with the current low interest rate environment, will support further growth in new home building. The apartment market continues to contract after a record number of completions. Apartment commencements are likely to pause while those that are currently under construction are completed and occupied,” Ms Lillicrap said.

Australian PCI® – Key Findings for February 2020:

  • February marked an 18th consecutive month of contraction in the Australian PCI® (up 1.4 points to 42.7).
  • Across the construction industry, activity (up 2.8 points to 45.1), new orders (up 4.8 points to 45.7) and supplier deliveries (up 2.5 points to 41.9) continued to contract in February 2020, but at slower rates relative to the previous month. However, persistent soft demand in residential construction has seen the employment index again steepen its rate of decline (down 4.8 points to 36.9).
  • Of the four construction sectors in the Australian PCI®, house building was again the best performing sector with activity expanding at its highest rate in almost two years (up 1.6 points to 55.0). In contrast, apartment building remained firmly in negative territory (down 0.4 points to 35.9).
  • Across the major project sectors, engineering construction fell for a ninth month but at a slower rate (up 2.5 points to 40.5) while commercial construction contracted at its sharpest rate since mid-2013 in recording a 19th consecutive month in negative territory (down 1.4 points to 37.5).
  • Cost pressures remain evident in the construction industry despite the input prices index in February 2020’s Australian PCI® easing by 4.9 points to 68.2. The selling prices index dropped a further 2.8 points to 43.0, with the wide gap between the price series suggesting profit margins remain tight with strong competition among builders.
  • Growth in wages also continued in February 2020, but at a slower pace compared to the previous month (down 5.1 points to 53.6).

Background: The Ai Group/HIA Australian PCI® is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights. An Australian PCI® reading above 50 points indicates that construction activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

Source: Ai Group

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