Conditions in the building and construction industry in Australia deteriorated again in September, the latest report shows.
Making matters worse, as new orders and employment numbers continue to fall, profit margins remain under pressure as selling prices decline even as wages and input costs rise.
In September, the Performance of Construction Index (PCI), a seasonally adjusted national composite index which measures overall conditions in the construction industry, fell 1.3 points to 30.9 – its lowest level since September last year and its second-lowest level over the past two years.
At this level, not only did overall conditions deteriorate for the 28th consecutive month, but the pace of that deterioration has been increasing for six straight months.
Although the residential sectors (apartments at 26.0 and house building at 28.5 on the index, where any number below 50 represents a decline) recorded the largest falls, all major sub-sectors recorded declines in activity during the month.
Worse, with new orders (29.1) also falling for the 28th month on end, the pace at which new work is coming in continues to slow.
The impact of the downturn is affecting profit margins and the sector’s workforce. Employment levels (33.0) continued to fall amid ABS reports that the sector’s full and part-time workforce shrank by 35,000 over a three month period.
Meanwhile, selling prices (35.9) also fell amid fierce competition for available work even as input costs (68.3) continued to rise, albeit at a moderating pace.
Respondents to the PCI survey listed low levels of consumer confidence and subdued public spending on infrastructure as key factors behind the decline in activity.
Australian Industry Group (AIG) chief economist Julie Toth says the findings dovetail with other recent indicators which show building approvals at low levels and new home sales at 15-year lows.
“This month’s Australian PCI continues to show that the capital-intensive activity under way at present in mining-related engineering construction work in some states is simply not filling the gap left by the severe national downturn in residential and commercial construction,” Toth says, adding that the decline is having a knock-on effect both up and down the construction and housing supply chains. This was evidenced in the recent failure of timber products group Gunns Ltd.
“This is particularly apparent in the new orders and employment measures, which are yet to show a meaningful turning point but which should hopefully be supported by this week’s welcome rate cut decision,” Toth says.
Housing Industry Association (HIA) chief economist Harley Dale says the figures vindicate October’s rate cut and underscore the need for a further reduction in rates in November.
Key Findings
As summarised in a statement released by the AIG and the HIA, the key findings of the PCI survey are as follows:
- The latest Australian Industry Group Australian Performance of Construction Index (Australian PCI), in conjunction with the Housing Industry Association, was down 1.3 points to 30.9 in September.
- The Australian PCI has now been in negative territory for more than two straight years.
- Across construction: house building fell by 3.0 points to 28.5, commercial construction dropped 4.4 points to 29.6, apartment building was up 3.9 points to 26.0 and engineering construction lost 3.0 points to 32.7.
- Subdued demand, low consumer confidence and a decrease in public spending on infrastructure were among the factors which weighed heavily on activity.
- New orders contracted for the 28th consecutive month with the most pronounced drop in new orders activity coming in house building (24.8).
- Input prices remained high in September (68.3) while selling prices (35.9) continued to decline.
By Andrew Heaton
