by Chris Becker
Might be a bit early to get excited about the so-called construction boom. The AIG Performance of Construction Index (PCI) for December 2014 continues to contract. From AIG:
The national construction industry contracted at a slightly steeper rate in December, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) dropping 1.0 point to 44.4 points (index readings below 50 points indicate a contraction in activity, with the distance from 50 points indicating the strength of the contraction).
Two measures stand out for mind. First, sector activity shows house building is dropping in line with new orders but also apartment building declined sharply, down some 14.3 points from November. This followed three months of falls in new orders. Commercial and engineering are also obviously retracting, but this hand off from mining to actual (as opposed to approvals) building is not working:
And it shows up quite clearly in construction employment:
More key points:
- The decline in activity and new orders seen in November continued this month, with the activity sub-index dropping a further 2.9 points to 44.5 points.
- All four construction sub-sectors in the Australian PCI® contracted in December.
- Following five months of growth, the apartment building activity sub-index dropped sharply to its lowest level in 16 months (down 14.3 points to 43.7 points).
- House building activity contracted for the first time since August 2013 (down 5.5 points to 46.3 points), while the commercial sub-sector experienced a steeper rate of decline (down 4.4 points to 41.6 points).
- Engineering construction continued to exhibit weakness, contracting at about the same rate as the previous month (45.2 points).
- Pressures on profit margins remain strong: input costs remained elevated (down 4.6 points to 69.9 points); and selling prices dropped by 2.7 points to 42.5 points, reflecting fierce price competition as builders seek to secure work in a very competitive market.
Texture from the Chief Economist at AIG, Julie Toth (emphasis added)
recovery in the construction industry was looking very promising through the middle of 2014, particularly in the housing and apartment sectors. In the final months of 2014 however, this much-anticipated recovery seems to have lost its momentum; we saw a noticeable deterioration across most of the key activity indicators for house building and apartment construction in November and December.
Commercial construction has failed to pick up pace, reflecting an ongoing lack of demand for new commercial and industrial facilities, while engineering construction is now experiencing the well-documented downswing in mining-related projects, as well as a decline in public sector projects.
You really think the RBA is going to raise rates going into this lack of demand, while the Federal Government twiddles its thumbs on any lasting infrastructure projects (except selling off the ones it can hand off to its mates)?