According to the latest data, conditions in the building and construction industry in Australia continued to deteriorate last month, with activity levels declining at the fastest pace on record since last September.
Amid a continued slump in new orders, employment levels and selling prices, input costs continue to rise and the pace of wage rises in the industry has accelerated, placing extreme pressure on margins.
In the month of August, the Performance of Construction Index (PCI) fell 0.4 points to 32.2 – its lowest level on record since September of last year.
This means that not only are overall conditions in the industry getting worse (any reading of less than 50.0 on the index represents deteriorating conditions), but also that the rate of decline continues to accelerate, as it has been doing for the past five months.
Along with reduced levels of incoming work and a shortage of new tender opportunities, businesses surveyed said reasons for the decline in activity included difficulties in securing project funding, subdued levels of public spending on building projects and weak consumer confidence.
Describing the continuing slump in the industry as an overall drag on the economy, Australian Industry Group director of public policy Peter Burn says the short term outlook remains poor amid a fall in new orders (down 5.8 points to 28.1) – particularly in apartments and engineering construction.
Housing Industry Association senior economist Harley Dale says the decline in new orders raises questions as to whether there will be any improvement in industry conditions in the coming December quarter.
“You would hope to be seeing a modest improvement by that quarter, but the odds of sighting that improvement appear to be lengthening,” Dale says.
Key findings of the August PCI were as follows:
- The overall PCI shrank from 32.6 in Jul to 32.2 in August – the 27th month on end that the PCI has remained below the 50.0 level separating expansion in the sector from contraction.
- Apartment construction (22.1) was the worst performing area, while the pace of contraction in engineering accelerated amid falling new orders and reports of project cancellations/delays. A weak reading in engineering despite strong mining activity reflects the relatively small proportion of civil construction firms involved in resource work.
- The pace of decline in new orders (down 5.8 points to 28.1) accelerated, particularly in apartments (22.3) and engineering (28.1).
- Even as employment levels (35.4) continue to fall (albeit at a moderating pace), the pace at which wages (62.5) are rising has accelerated.
- With input deliveries (37.2) continuing to decline in response to the weakness in new orders, the impact of the slump is spreading to suppliers: recent data has also shown that overall manufacturing activity in construction materials is shrinking and production levels of bricks and tiles are subdued.
- Profit margins remain under extreme pressure as input costs (72.2) rise at a faster rate and selling prices (38.5) continue to decline.