Australia’s construction outlook is looking good as new orders continue to roll in


Australia’s manufacturing, services and construction sectors all saw activity levels improve in June, providing further evidence that economic conditions are strengthening.

After robust results for manufacturing and services earlier in the week, the Ai Group’s Performance of Construction Index (PCI) released earlier today also oozed strength in June, coming in at 56.0.

As a reminder, the PCI measures changes in activity levels across Australia’s construction sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating.

The distance away from 50 indicates how quickly activity levels are expanding or contracting.

While the PCI was down slightly on the 32-month high of 56.7 stuck in May, it still points to activity levels that are improving rapidly at present.

It was also the fifth consecutive month that activity levels improved from a month earlier — a good trend in anyone’s language.

The chart below shows the noticeable improvement in activity levels across the sector in the first half of 2017.

Source: Ai Group

And, making the result all the more robust, the strength was driven by three of the four subsectors monitored by the Ai Group.

Housing, commercial and engineering construction all saw conditions improve from a month earlier, especially the housing component which jumped 13.4 points to 59.0, reversing the modest decline recorded in May.

Those results were partially offset by a huge turnaround in construction activity across apartments which tanked 20.2 points to 48.3. While a huge decline, the subindex suggests activity levels weakened slightly after a rollicking period in May.

“There were reports from apartment builders of softer activity in the month due to the completion of some larger multi-unit developments and an easing in demand conditions,” the Ai Group said.

Like the headline PCI, any reading above 50 in the subindices points to an improvement in activity levels.

Source: Ai Group

Unsurprisingly, the strong performance across the sectors was replicated in the survey’s activity subindices.

Hiring, employees wages and supplier deliveries all strengthened from a month earlier, albeit at a slightly slower pace than May.

Importantly, the new orders subindex went the other direction, rising 2.1 points to a four-month high of 61.9. All sectors recorded an increase in orders from a month earlier, especially for commercial and engineering work with both subindices coming in above 60.

That suggests that new orders are currently rolling in, a good sign for activity levels across the sector in the months and years ahead.

And, given that residential construction is expected to decline over the next few years, the strength in commercial and engineering orders — which are generally projects that take lengthy periods to complete — suggests the slowdown across the broader sector may be far more benign than what many currently expect.

That, said the Ai Group, helped to bolster confidence across the sector in June.

“Respondents were generally positive in their assessment of house building activity, citing stronger new orders and a high degree of support from on-going projects,” it said.