Australia’s mining infrastructure boom may be over, but it looks like another boom is just beginning

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Australia’s construction sector continued to strengthen in October, although it appears to have lost a bit of the momentum seen earlier in the year.

The Ai Group’s Performance of Construction Index (PCI), released in conjunction with Australia’s Housing Industry Association (HIA), fell by 1.5 points to 53.2 in October, leaving it at the lowest level since April.

The PCI measures perceived 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 53.2, activity levels continued to improve last month, just not as fast as September.

Source: Ai Group

The index has now held above the 50 level in each of the past nine months, underpinned by continued strength in housing and engineering construction.

“Engineering construction was again the strongest performing area with its rate of expansion at a 10-year high on the back of rising levels of non-mining infrastructure work,” the Ai Group said.

“House building activity also recorded continued growth, albeit at a slower pace, in response to a solid backlog of work and on-going firm demand.”

Survey respondents said engineering construction was supported by a roll-out of major new road and rail projects. Mirroring recent strength in building approvals, homebuilders cited solid growth in new orders as a positive for activity levels.

Elsewhere commercial construction was relatively unchanged while apartment construction continued to contract.

Source: Ai Group

By activity subindex, new orders grew at a faster pace than September, hinting that activity levels will likely remain firm in the period ahead.

They increased across all categories aside from apartment construction, led by orders for new houses which rose by 5.5 points to 59.0. Engineering and commercial stood at 55.6 and 50.4 respectively in the latest survey.

New orders for apartments came in at 47.4, indicating a decline from the levels seen in September.

Like the headline PCI, a reading above 50 indicates an increase from one month earlier.

With news orders and activity levels continuing to improve, hiring across the sector also edged higher, albeit at a slightly slower pace. Wage growth, as measured by this survey, also grew strongly with engineering firms reporting skill shortages in some roles.

“This is consistent with the investment upturn in transport infrastructure and other public works which has led to strong demand for construction workers and increasing difficulties in filling various skilled vacancies,” the Ai Group said.

While most sectors are enjoying strong operating conditions, input prices rose significantly faster than selling prices leading to margin pressures for some firms.

The Ai Group said cost pressures was driven by robust demand for construction materials, escalating energy input costs and supplier price hikes related to high commodity prices.