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Construction employment and activity down, Australian PCI reports

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Construction activity across Australia has declined for a fifth straight month as industry predicators also regressed. 

The Ai Group’s and Housing Industry Association’s Australian Performance of Construction Index (Australian PCI) fell by 3.2 points to 43.3 in October, indicating contraction in activity across the construction sector for a fifth month, and at an increased rate of decline compared to September. 

“Each of the four subsectors – housing, apartments, commercial and engineering – contracted in the month. The construction employment indicator also declined to its lowest level since July 2020, indicating a particularly sharp fall in employment compared with September,” Ai Group Chief Policy Advisor Peter Burn said. 

According to Burn, while input and selling prices remain elevated, input price pressures eased slightly and supplier deliveries improved, indicating some softening in supply chain constraints. 

“Economic uncertainty and several months of interest rate rises are clearly impacting the construction sector and particularly the residential subsectors,” Burn said. “Lending data from the ABS show a continuing reduction in new loans for home buyers compared with the much higher levels seen over the period of exceptionally low interest rates. 

“With the Australian PCI new orders indicator showing a further decline of new orders and with the further rate rise announced this week and with more rate rises foreshadowed, further declines in construction activity appear likely over coming months.” 

The Housing Industry Association Senior Economist, Nicholas Ward said that RBA cash rate increases are working. 

“Rate hikes, combined with builders’ focus on completing the pipeline of existing work, have seen new sales materially weaken in recent months,” Ward said. 

“It will be some time before the full effect of rate hikes is evident in terms of reduced capacity utilisation and reduced cost pressures, because the pipeline to work through is so large.”

Key Findings for October 2022: 

All four construction subsectors were in contraction in October. This is the first time all sectors have declined in the Australian PCI since August 2021. 

The employment index fell into contraction, recording the lowest result since July 2020. 

Demand side pressures, including rising interest rates and economic uncertainty, are dampening construction sales and new orders. 

Supply side constraints, especially a shortage of skilled trades, continue to inhibit activity, but there are signs of materials supply chain pressures easing. 

The selling prices index was virtually unchanged at 77.1 points. While input prices moderated, at 83.7 the indicator remains higher than selling prices. 

Capacity utilisation fell slightly to 82.8% but remains elevated as it has been since the start of 2021. 

Download the full report here. 

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