Conditions in the Australian construction industry continued to deteriorate in June as falling workloads and low levels of demand continued to impact upon new orders, activity, employment and profit margins.
At 34.8 (virtually unchanged when compared with May), the Performance of Construction Index in June remained well below the 50.0 mark that separates increasing construction activity from decreasing activity.
The decline continues to be felt across all sectors, with the sub-indexes for engineering (39.9), house building (30.7), commercial building (26.6) and apartment building (21.8) all remaining well in negative territory, albeit with declines in commercial and house building moderating slightly in June.
The deterioration in engineering construction activity in spite of booming resource construction conditions reflects the relatively small number of engineering construction firms engaged in mining as opposed to other areas of civil construction.
Making matters worse, in a worrying sign going forward, new orders (33.4) continued to decline, meaning that the pace at which new work is coming in is slowing down.
Moreover, the impact of weak building conditions continues to flow through to workers and profit margins.
Although wages (55.7 on the index) continue to rise at a modest pace, employment levels (38.7) continue to shrink.
Indeed, earlier figures from the Australian Bureau of Statistics suggest that on a seasonally adjusted basis, full-time employment levels within the industry are at their lowest point since the global financial crisis.
Profit margins, too, continue to contract amid a surge in input prices (73.7) and weak conditions feeding through to falling selling prices (38.9).
Housing Industry Association chief economist Harley Dale says the latest figures are concerning and do not bode well for the immediate future of the industry.
“Further weak updates for residential construction in the June Australian PCI, including a steeper contraction in new orders for detached houses and apartments, unfortunately confirm that new home building conditions will deteriorate further in the second half of 2012,” Dale says. “Residential construction activity looks set to trough at GFC-equivalent levels and yet we’re not in the midst of the GFC.”
Meanwhile, Australian Industry Group director of public policy Peter Burn says that while conditions in engineering construction are palatable due to the mining boom, residential and commercial construction have been held back by a combination of difficult financing conditions and a lack of demand.
Intriguingly, the latest figures follow earlier data showing a surge in building approvals in May – the first positive sign the industry has seen for a long time – though much of the surge could be attributed to a pull-forward effect as home buyers in Victoria and New South Wales rushed to take advantage of generous home buyer incentive schemes prior to their expiration on June 30.
It is hoped that recent reductions in interest rates will help to put a floor under the deterioration in building conditions going forward.