Australia's construction sector is growing again thanks to a surge in engineering work

Photo by David McNew/Getty Images

Activity levels across Australia’s construction sector improved in September, led by non-mining engineering work.

The Ai Group’s Performance of Construction Index (PCI) rose by 4.8 points to 51.4, signalling a modest improvement across the broader sector.

The PCI measures changes in activity levels across Australia’s construction sector from one month to the next. A reading above 50 is deemed neutral, meaning activity levels were unchanged from the previous month. A reading above 50 suggests activity levels are expanding while a sub-50 figure indicates they are weakening.

Essentially, the higher the number the better.

It was the third month in four that activity levels improved.

Source: Ai Group

While overall activity levels strengthened modestly, the performance across the sector was uneven in nature with a strong expansion in non-engineering construction helping to offset mild declines in housing, apartment and commercial construction.

“Across the four sub-sectors, engineering construction continued to expand on the back of higher levels of non-mining infrastructure work. In contrast, commercial construction activity weakened, falling back into negative territory after growing in the previous three months,” said the Ai Group.

The strength in engineering construction was attributed to an upturn in infrastructure activity, particularly road and rail projects in the eastern states.

As for residential construction, both housing and apartment construction weakened slightly.

“House building activity contracted for a second consecutive month while conditions in the apartment sector were weaker with activity recording a slight overall contraction in the month,” the group noted.

“House building respondents commented on weaker home buyer sentiment and relatively soft new orders in September, although it was noted that activity continued to receive a high degree of support from on-going projects,” it added.

The table below shows how each component fared over the month. The figures are three-month moving averages, done to smooth out volatility in the individual components. It comes courtesy of the Ai Group.

Like the individual sub-sectors, the PCI’s measures on new orders, employment and wages came in mixed.

New orders, a lead indicator on future activity levels across the sector, rose by 3.2 points to 48.7, indicating that orders fell modestly during the month.

Mirroring the performance of individual sub-sectors in September, the only component that saw an increase in orders was for engineering work.

“The sub-index increased by 5.0 points in the month to 52.0 points. This improvement reflects new contracts secured by businesses for construction work in areas outside of mining, including road and rail projects,” the Ai Group said.

Outside of engineering, the group noted that new orders for apartment construction fell for the first time in four months, dropping 4.1 points to 46.2.

If there was a standout performance in September, it came from employment growth across the sector — it boomed. The employment subindex jumped 10 points to 57.6, indicating jobs were added at the fastest pace seen in two years.

However, despite the surge in employment recorded, it wasn’t enough to spur on wage growth which moderated over the month. The wages subindex slid 6.4 points, leaving it at 60.0.

“Overall wages growth in the construction industry is likely to have remained generally contained in 2016 to date, due to a subdued inflationary and labour demand environment across the economy,” the Ai Group noted.

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