Australian Construction Index Plummets in March

QV Building Construction Site

Image Source: Wikimedia Commons. Author- Diliff

An index widely considered an authoritative snapshot of current market conditions in the Australian construction industry has dropped back, reinforcing concerns about the fragility of the anticipated recovery in building activity.

Following a strong reading in February (see chart), the Australian Industry Group/Housing Industry Association Performance of Construction Index (Australian PCI®) dropped 6.6 points in March to come in at 39.0.

This means not only did conditions deteriorate during the month (any reading below 50.0 indicates worsening conditions), but the pace of the decline accelerated again having previously moderated in prior months.

Leading the decline was the engineering sector, with the sub-index for this area dropped 14.8 points to 38.4, reversing an enormous gain in February. Housing (47.0) also returned to negative territory whilst apartment building (34.2) contracted at its fastest pace for five months and commercial (29.3) experienced the worst conditions of all.

And in a continuing sign of the sluggish pace at which new work is coming in, the sub-index for new orders fell 5.7 points to come in at 36.0.

key findings chart

Credit: Australian Industry Group

Australian Industry Group Chief Economist Julie Toth says the latest results are not what the industry needed to hear.

“After the strong improvement in February the survey results for March are clearly disappointing and a further indicator of the fragility of conditions across the construction industry” Toth says.

“Of concern, the current stretch of decline in new orders for the industry has now extended to 34 months as businesses continue to be hampered by a shortage of new work, project delays and weak investor sentiment. The drop off in new orders was particularly sharp in the commercial construction sector reflecting a scaling back in public investment and on-going weakness in approvals.”

Speaking about the residential sector specifically, Housing Industry Association Chief Economist Harley Dale says a further improvement in March (on top of positive results in February) would have helped allay fears about the breath and sustainability of recovery.

“Alas, there was no such improvement but rather a renewed deterioration, the result for detached houses being of particular concern” Dale says.

The latest results follow earlier figures showing an encouraging rise in building approvals but also a disappointing reading for new home sales.

Fortunately not all of the news was negative. Whilst the new orders sub index for home building (42.0) fell 7.7 points, it remains at its second highest level in two and a half years.

activity by sector chart

Credit: Australian Industry Group

Key points:

  • The Australian PCI® fell 6.6 points in March to come in at 39.0 – the 34th month on end the index has registered a reading below the 50.0 level which separates expanding conditions from deteriorating conditions.
  • The sub-index for house building dropped 4.5 points to 47.0, whilst engineering (down 14.8 to 38.4), apartment building (down 8.0 to 34.2) and commercial building (virtually unchanged at 29.3) remain firmly in negative territory.
  • The index for new orders dropped 5.7 point to 36.0 whilst that for employment dropped 9.2 points to 39.2
  • Pressure continues on profit margins as input prices (65.4) continued to rise even as selling prices (31.6) fell again amid strong competition for limited work.
By Andrew Heaton
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