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Construction industry recovery continues in February 2021

Construction industry recovery

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) eased slightly by 0.2 points to 57.4 in February (2021), continuing the recovery seen in late 2020 (readings above 50 indicate expansion in activity, with higher results indicating a faster expansion).

All four sectors in the Australian PCI® recovered strongly in February (2021) with the housing activity index surging to a new record high and apartment building turning positive for the first time in three years. Commercial and engineering activity did slow from December’s peaks however, and with new orders for new projects in those two sectors turning negative in February, growth may slow again in the coming months.

Ai Group Head of Policy, Peter Burn, said: “The construction sector continued to recover in February (2021) building on the strong rebound that first emerged in October last year. House building activity further accelerated, and the apartment sector lifted firmly into positive territory in the month. Both commercial and engineering construction continued to expand although the pace of increase eased for commercial construction. Employment and activity levels both built on the gains of recent months. While recent data has been encouraging, the immediate outlook is mixed with new orders higher only in the housing segment: they were flat for the apartment building sector, mildly negative for commercial building and sharply lower for engineering construction. With several components of fiscal stimulus winding down, delivery on the increased infrastructure pipeline will become a key swing factor in the continued recovery over the rest of 2021,” Dr Burn said.

HIA Economist, Tom Devitt said: “Demand for new housing has been driven to record levels on the back of HomeBuilder, low interest rates and shifts in preferences towards detached housing and regional areas. The end of HomeBuilder’s first phase deadline in December caused a spike in new home sales in the final month of 2020. The second phase deadline is similarly likely to push back new home sales until March this year. The work that will have entered the pipeline after this point will support home building activity well beyond HomeBuilder. The weaker outlook for apartments still depends very much on the return of overseas migrants, students and tourists,” Mr Devitt said.

Australian PCI® – Key Findings for February (2021):

  • All four sectors in the Australian PCI® expanded in February (2021),  with house building activity hitting a record high (up 10.2 points to 75.5) and apartment building firmly turning positive for the first time since February 2018 (up 21.1 points to 66.7). Commercial building (down 8.0 points to 54.5) and engineering construction (down 0.5 points to 52.8) continued to recover but at a slower pace, and a dip in new orders suggests growth may slow again in coming months.
  • The Australian PCI® activity index hit a record high in February (2021) (up 4.0 points to 61.4) on the back of the jump in residential construction. New orders slowed (down 8.5 points to 50.1), stabilising after a sharp spike in December ahead of changes to housing grants, while the supplier deliveries index accelerated slightly (up 0.3 points to 56.9) as builders appear to be increasing their orders and catching up on supplies after freight disruptions.
  • The index for input prices rose a further 3.8 points to 80.2 – its highest level since 2018 – as demand for building materials and supplies surged. The selling prices index also reached a record high (up 6.7 points to 66.3), indicating that more builders are able to pass on their cost increases.
  • The average wages index rose by 3.3 points to a three-year high of 64.4 and the employment index expanded strongly to its highest level since 2014 (up 4.7 points to 61.7), as activity and employment resumed in more locations and across more segments of construction.

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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