The Fence
Building

Construction activity improves in February 2022

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) improved by 7.5 points to 53.4 in February, indicating a recovery in activity across the construction sector after a sharp fall over the summer holiday period (readings above 50 indicate expansion in activity, with higher results indicating a faster expansion).

Peter Burn, Chief Policy Advisor at the national employer association Ai Group said: “Following the Omicron-affected contraction of the sector in the December-January period, construction activity improved in February with activity in three of the four component sectors expanding and apartment building activity flat. Employment grew and there was a healthy pick-up in new orders across the construction sector. The difficulties in supply chains persisted although the pace of decline in supplier deliveries eased. Ongoing inflationary pressures were evident with cost rises for inputs and wages growth remaining elevated and selling prices also rising on the back of solid demand. With capacity utilisation at very high levels, employers from across the construction sector reported ongoing difficulties in filling positions particularly for skilled labour. These conditions, together with the rebound of new orders suggest further inflationary pressures in the period ahead,” Dr Burn said.

HIA Economist, Tom Devitt, said: “There are no indications that home building activity is facing a weaker outlook any time soon. Home building bounced back as the Omicron wave abated. New home sales are exceptionally strong, up around levels usually only seen during periods of direct stimulus, on the back of the pandemic trend towards lower density housing. Rental vacancies are incredibly low. Unemployment is around record lows. The Reserve Bank has also just reiterated its ‘patient’ stance with respect to any future increases in its benchmark cash rate, as it waits for supply chain issues to more fully play out. The first signs of weakness will be seen in terms of access to finance, especially for first home buyers, as house price growth slows in the established market. This year, the salient constraint on builders will remain the price and availability of land, labour and materials, rather than any absence of demand,” Mr Devitt said.

Australian PCI® – Key Findings for February 2022:

  • The activity indexes for all four sectors in the Australian PCI® rebounded following a return to more normal business conditions in February. Activity expanded in house building (up 18.3 points to 58.3), commercial (up 19.3 points to 58.8) and engineering construction (up 6.3 points to 56.3), while the index for apartments lifted into stability in February (up 28.6 points to 50.0) compared to the deep contraction in the summer period.
  • The indexes for activity (up 15.4 points to 56.5) and new orders (up 7.7 points to 55.4) recovered in February as conditions improved across the country, while supplier deliveries contracted for an eighth month, if at a slower rate (up 7.5 points to 41.9).
  • The index for input prices continued to reflect strong upward pressure in February (down 0.4 points to 95.6), marking 12 months of extremely elevated results. The selling prices index also marked 12 months of elevated readings, moving 5.4 points higher to 86.8 points – a record high for this pricing series (which commenced in 2008).
  • The average wages index reached a series high (up 1.5 points to 77.5) following six months of increased wages pressures, while the employment index moderated slightly (down 2.2 points to 54.3) to be down from the recent peak in November and well down from the series high in March 2021.

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

Most Popular

Newsletter Signup

The Fence
To Top