The AIG released their December Performance of Construction Index (PCI) to complete the avalanche of local data this morning. Overall, the index lifted 1.4 points to 41 indicating improvement, but in aggregate this is still a contraction across the entire sector (a reading below 50 is contraction).
Here are the key findings:
- The easing in the rate of decline was largely attributed to the boost in engineering construction (51.3) thanks to increasing work from the resource sector.
- While commercial construction (32.8) and apartment building (33.3) declined at a slower rate in December, house building fell 5.7 points to 32.9.
- Tight credit conditions, a lack of new tender opportunities together with strong competition for existing work hampered growth in the month.
- New orders declined for the 19th consecutive month (42.5) although the pace of decline was slower.
- Employment continued to fall at a marked rate while wages grew at a faster rate, up 1.8 points to 60.1
It seems the more up to date construction figures bely the November home sales stat’s announced by the HIA earlier this morning. As the following chart by sector shows clearly, engineering construction is the only sub-sector having any joy at the moment:
AIG Director Public Policy, Peter Burn, said:
The broader multi-speed economy phenomenon is playing out within the Australian construction industry with a clear divide between the expanding engineering construction sub-sector and the still-contracting commercial and residential construction sub-sectors. The increased pace of contraction in the house building sub-sector in December remains deeply concerning.
Nevertheless, the easing of the pace of contraction in overall activity and in new orders across all sub-sectors, serve as glimmers of hope that 2012 may see a return to more balanced growth across the industry.
Following on from his comments earlier today, HIA Chief Economist, Harley Dale, said:
A less marked rate of contraction in the national construction industry in December 2011 should in no way disguise the very weak residential and non-residential building conditions. The Australian PCI® has now contracted for nineteen consecutive months.
A more marked rate of contraction for house building is an especially concerning update for the end of 2011, and the same outcome is evident for the employment sub index of the Australian PCI®. There is a clear need not only for further interest rate relief but also for government action in terms of both shorter-term stimulatory measures and a re-invigorated plan for policy reform.
One suspects that another version of the First Home Buyers Boost and/or continued stimulatory packages for new construction will be called for by all and sundry, alongside continued easing of interest rates by the RBA, even though the outcome so far has been muted at best.