Australia's construction sector is humming as engineering work ramps up

Picture: Getty Images

Australia’s construction sector is humming, continuing to benefit from strength in engineering and home building work.

The Ai Group’s Performance of Construction Index (PCI), produced in conjunction with Australia’s Housing Industry Association (HIA), fell 5.2 points to 55.3 in August, pulling back from the record-high level struck in the previous month.

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.

So at 55.3, activity levels continued to improve at a decent clip last month, just not as fast as July.

Still a solid result in anyone’s language.

Source: Ai Group

According to the Ai Group, engineering construction and house building were the major drivers of growth in August.

“Reflecting the boost from greater government infrastructure spending on major works, engineering construction activity expanded strongly and at a rate that was broadly unchanged from the previous month,”it said.

“Continued strength was also evident in the house building sector, although its growth moderated from the 4.5 year high pace reached in July.”

Those solid results helped to offset a sharp slowdown in the commercial sector, along with weaker activity levels in apartment construction which declined at the fastest pace in five months.

This table from the Ai Group shows the performance of the individual activity subindices in August.

Source: Ai Group

The AI Group said that the measures on activity and new orders continued to expand at relatively high rates in August despite easing in comparison with July, noting that the sustained growth in aggregate industry demand led to the strongest expansion in deliveries from suppliers in almost three years.

While the new orders subindex fell 7.1 points to 57.5, that indicates that new orders still grew at a decent pace, adding to the gains seen in July when the index hit a 12-year high.

That’s a good sign for activity levels across the broader sector as we head towards year-end.

New orders for engineering work drove the increase with the sector’s sub-index jumping by 8.1 points to 64.6 points.

“This further expansion in activity is consistent with reports of new tender wins in non-resources project categories including transport and other public sector works,” said the Ai Group.

New orders for home and commercial construction also improved, albeit at a slower pace, while the apartment subindex tumbled 22 points to 43.8 points.

“It follows a 6.7% monthly fall in private sector multi-unit dwelling approvals in June,” the Ai Group noted.

Mirroring the slowdown in activity levels and the pipeline of new work, employment growth across the sector slowed sharply over the month.

That’s something to keep a close eye on in the period ahead given the construction sector is the third-largest employer in Australia behind healthcare and retail.

Despite the slowdown in hiring, wages in the sector bucked the trend, rising at a brisk pace.

“This is a likely reflection of strong demand for construction workers and difficulties that still exist in filling various skilled vacancies,” the Ai Group said.

While there were pockets of weakness in the August report, Peter Burn, head of policy at the Ai Group, said the outlook for the broader sector remains healthy.

“The near-term outlook for the overall construction sector remains healthy with new orders stronger other than for the apartment building sub-sector which saw a very steep fall,” he says.

“The very solid pipeline of infrastructure work is providing a major boost to the overall economy and is picking up at least some of the slack left by the retreat of mining-related investment.”

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