Australia's economy looks like it's rapidly improving, as the construction sector expands at the fastest pace on record

Photo by Dan Istitene/Getty Images

Activity levels across Australia’s construction sector soared in July, improving at the fastest pace in at least 12 years, according to the latest Performance of Construction Index (PCI) released by the Ai Group today.

The PCI, produced in conjunction with Australia’s Housing Industry Association (HIA), jumped by 4.5 points to 60.5, leaving it sitting at the highest level since the survey first began back in September 2005.

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 60.5, not only did activity levels improve rapidly last month, they did so at the fastest pace on record.


The strong report card followed robust readings on Australia’s manufacturing and services sectors during July, suggesting Australia’s economy enjoyed a rollicking start to the second half of the year.

Source: Ai Group

“The further upturn in industry conditions reflected expanding activity across all four major construction sectors,” the Ai Group said.

“The rate of expansion in commercial construction lifted to its highest level in 12 years amid an increase in the number of projects entering the work pipeline. House building recorded its fastest pace of growth in 3.5 years on the back of a solid backlog of work and ongoing strength in demand.”

Those strong performance were aided by a large improvement in engineering construction, rising 6.9 points to 57.5, while activity levels for apartment construction, having previously deteriorated in June, also rebounded modestly.

“More robust conditions were also evident in engineering construction activity in July, with the sector’s sub-index rising solidly in line with reports of increased levels of non-mining infrastructure work,” the group said.

The improvement in apartment activity was driven by a fourth consecutive increase in new orders, mirroring strength in unit approvals in Australia’s official buildign approvals report for June released last week.

The Ai Group said readings on new orders, employment and wage growth also improved rapidly during the month.

Source: Ai Group

“Across the construction industry growth in new orders and activity accelerated in July to rates that were among the strongest in the survey’s 12-year history,” it said, adding that “this led to solid expansions in deliveries from suppliers and employment”.

‘New orders expanded at stronger rates in the house building, apartment and commercial construction sectors, while growth moderated in the engineering construction sector.”

By individual sector, the group said new order subindices for housing, apartments, commercial and engineering came in at 63.1, 66.7, 74.2 and 56.5 respectively, pointing to surge of new work across the broader construction sector.

As a lead indicator on future activity levels, this bodes well not only for the sector but also the broader Australian economy.

This chart from the Ai Group shows the scale of the improvement in new orders seen in recent months.

Source: Ai Group

And thanks to a surge in new work, staffing levels and wages paid across the sector both logged strong increases during the month.

“July’s growth in employment was the highest in almost three years. Increased employment was mainly recorded by those respondents experiencing increased activity in the month and seeking to boost operating capacity,” the Ai Group said.

While the survey’s capacity utilisation figure fell 3.1 points to 77.6%, that decline followed the strongest reading in over nine years in the previous month.

Peter Burn, head of policy, at the Ai Group, said the July report suggests the national construction industry will continue to play a leading role in the economy for some time to come.

“The construction industry has continued its strong run with infrastructure work, a resurgent commercial construction sub-sector and ongoing healthy levels of activity in residential building combining to more than offset the further wind-down of mining-related work,” he says.

“The buoyancy of the sector is evident in strong levels of current activity and employment growth and growing order books. The long-awaited pick-up in commercial construction seen over the past three months is particularly welcome in light of the anticipated wind-down in apartment building from the very high recent levels.”

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at