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Australian PCI®: Recovery underway in construction activity in October 2021

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 4.3 points to 57.6 in October, indicating a strong pace of recovery following the sharp fall in August due to COVID-19 restrictions (readings above 50 indicate expansion in activity, with higher results indicating a stronger pace of expansion).

Ai Group’s Chief Policy Advisor, Peter Burn, said: “The healthy leap in activity levels across the Australian construction sector in October is a taste of what is expected to be a strong rebound for the broader economy over the next few months as New South Wales, Victoria and the ACT, liberated from COVID restrictions, catch up with the rest of the country and as barriers to the movement of people within Australia are removed. A high volume of new orders in October added to the already healthy pipeline of building and construction activity and will further stretch capacity limits and re-expose underlying shortages of skilled labour in many occupations over coming months. Pressures on input prices are being exacerbated by localised shortages and the more general disruptions to global supply chains. With the pace of wages growth also running high, builders and constructors are testing their ability to recover some of their higher costs from customers with some success. The current building and construction pipeline is unlikely to be affected by yesterday’s bring-forward of expectations of interest rate rises by the Reserve Bank although there may be some recalibration of the medium-term outlook in coming weeks,” Dr Burn said.

HIA Economist, Tom Devitt, said: “Housing market confidence has bounced back in October as restrictions in Sydney and Melbourne eased. A healthy volume of new detached home sales is still entering the pipeline, six months since the end of the HomeBuilder stimulus. This will maintain a significant level of on-the-ground activity over the coming 12 months. Apartment construction activity also jumped in October. There has been a recent improvement in apartment approvals in New South Wales, Queensland and Western Australia. A surprisingly large number of multi-units also commenced construction in the June 2021 quarter. This will be helping support construction activity in October,” Mr Devitt said.

Australian PCI® – Key Findings for October 2021:

  • All four sectors in the Australian PCI® reported higher levels of activity in October, with apartments (up 14.3 points to 64.3), commercial (up 21.3 points to 62.5) and engineering construction (up 15.1 points to 76.9) activity particularly strong. Following recent contractions, house building activity lifted moderately (up 12.3 points to 51.9).
  • The Australian PCI® index for new orders remained strong in October (down 0.2 points to 58.7), with builders reporting increased new enquiries in addition to the back-log of work due to recent interruptions associated with restrictions.
  • The index for input prices continued to show strong upward pressure in October but eased from recent peaks (down 1.2 points to 97.2), while the index for selling prices remained strong (down 0.5 points to 78.3). Builders nationwide continue to report very high prices from suppliers and importers.
  • The employment index pointed to further expansion in October (down 0.2 points to 56.8), despite ongoing skilled labour shortages across the country. The wages index moderated by 1.5 points to 75.1 but remains well above its long-run average (67.9 points).

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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