The expansion across Australia’s construction sector slowed to a crawl in November with the latest AIG-HIA performance of construction index (PCI) falling 1.4 points to 50.7.
As is the case with all PMI reports, a reading above 50 signals activity across the sector is expanding.
While the headline index pointed to a modest expansion in activity levels, strength in apartment construction masked weakness across housing, commercial and engineering activity.
The survey’s subindex for apartment construction came in at 69.0, a decline of 3.4 points from October but still well above the 50 level that separates expansion from contraction, which helped to offset declining activity levels across all other sectors.
The surveys gauge on housing construction rose 1 point to 48.0, while engineering increased 1.9 points to 46.0. Activity in commercial construction contracted at a faster pace, falling 2.7 points to 46.3.
Essentially, aside from residential apartments, construction activity across all other sectors remains in the doldrums. This is reflected in the survey’s overall activity gauge which slipped 1.4 points to 48.1.
Elsewhere new orders slipped 3.7 points to 49.8, taking the gauge marginally into contractionary territory, while weaker expansions were registered in employment (54.5, -0.4 points), input prices (65.9, -3.0 points), wages (58.7, -4.5 points) and overall capacity utilisation (75.1%, -0.2%).
Interestingly, the gauge measuring selling prices slid 4.8 points to 42.8, indicating that downside price pressures are mounting in line with deteriorating sentiment towards the housing market and recent declines in auction clearance rates.
The full breakdown of the November survey, supplied by the Ai Group, can be found in the table below.
The Ai Group note that the divergence in output prices to selling prices “demonstrates that pressures on profit margins remain strong”, with “widespread reports from respondents of a highly competitive tender pricing environment in the construction industry.”
Despite the strength in apartment construction Peter Burn, Ai Group head of policy, called the decline in new orders outside of detached housing “sobering”.
“The continuing boom in apartment building saw a slight lift in the overall construction sector in November despite falls in house building and commercial and engineering construction,” said Burn.
“Both current activity and new orders in the apartment building sub-sector rose in contrast to the other three sub-sectors in which activity and new orders fell. With new housing approvals having fallen in recent months and with mining and energy-related engineering construction on the decline, the overall health of the construction sector in coming months is likely to depend on whether there is a lift in commercial construction and civil engineering work. In this context the decline in new orders in November is somewhat sobering.”
With concern about the outlook for residential property prices heightened amid souring buyer sentiment, falling auction clearance rates and tighter restrictions on investor lending – factors that were chiefly responsible for fueling the recent surge in unit construction – it appears that risks for the sector are slanted to the downside at present since all the growth is centred in high-density residential housing.
Should activity across high density residential construction falter, it does not appear that Australia’s other construction subsectors – at least based on current trends – will be in a position to offset the weakness should it eventuate.