Construction contracts again

The performance of construction index for December is out this morning and, as expected, it’s not the best.

Despite some encouraging signs, the national construction sector finished 2012 in negative territory according to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®). The seasonally adjusted index was 1.8 points stronger at 38.8 in December (readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline).

A slowing in the pace of decline across new orders (up 8.3 points to 42.6) and construction activity (3.8 points higher at 39.6) contributed to the stronger December index. Across the sectors – commercial construction and engineering construction contracted at a slower pace, in contrast, house building and apartment building declined further.

Australian Industry Group Director Public Policy, Peter Burn, said: “Australian construction activity ended 2012 largely as it began, deeply entrenched in negative territory. Not surprisingly, given the toughness of business conditions, the industry is continuing to reduce employment. There are, however, some signs that 2013 might see more positive conditions. For the industry as a whole, new orders declined at a distinctly slower rate in December. In particular, commercial construction activity levels appear likely to stabilise as private investment in key markets shows early signs of improving. New orders in commercial construction recorded their first expansion since October 2010 while intakes of new business also improved in the engineering and apartment sectors. More worrying for the outlook is the steeper decline in new orders within the house building sector with low consumer confidence continuing to weigh heavily on demand,” Dr Burn said.

Housing Industry Association Chief Economist, Harley Dale, said: “While a third consecutive slowing in the overall pace of contraction in the Australian PCI® marks an encouraging end to 2012, the updates for housing were disappointing. Detached house building represents well over 60 per cent of all residential construction activity in Australia and the December 2012 Australian PCI® points to a steeper decline in activity and new orders, not to mention employment. That is a concerning update which aligns with other indicators suggesting a deterioration in pre-existing weak conditions for detached house building in the latter part of last year. Activity in the apartments sector only lost a modest amount of the ground gained in November while new orders contracted at a slower pace, but monthly iterations still revolve around clear contractionary conditions. All up, if policy makers were hoping the first housing update out in 2013 would deliver a signal of current policy settings boosting the chance of a new home building recovery, they’re going to have to keep hoping,” Mr Dale said.

Australian PCI® Key Findings for December:

  • The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) recorded 38.8 in December – a lift of 1.8 points (readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline).
  • The Australian PCI® has now been contracting for 31 consecutive months.
  • New orders sub-index was 42.6.
  • Across construction: House building (34.7), Apartment building (40.1), Commercial construction (46.2), and engineering construction (38.5).
  • Selling prices contracted (36.0) while input prices increased (68.8). • A reduction is home buyer enquiries and a lack of commitment from potential buyers was cited as affecting activity – particularly house building – in December.

So it’s a fairly poor report overall and once again you have to wonder about the RBA’s plan to offset resources with construction. Luckily the latter is showing a bit of a recent bounce. On the upside we are seeing a slowing trend in contraction for non-residential construction which I hope continues, but that is not enough to save jobs or prices both of which continue to decline. On-balance that’s not the greatest result.

Full report below

Pci Dec12 Final Report

Comments

  1. reusachtigeMEMBER

    “Housing Industry Association Chief Economist, Harley Dale, said: “While a third consecutive slowing in the overall pace of contraction in the Australian PCI® marks an encouraging end to 2012”

    Umm, don’t they always say things like this? I think it’s mandated by their PR department. LOL.

  2. Harley’s time (and Vic HIA members money)would be better spent requesting Big Ted remove the FHB grant on pre-existing home sales.

  3. There is no urgency to substitute construction for mining/processing development at this stage. Unemployment is modest and the mining/processing construction employment doesn’t run off substantially for some time.

    The main thing is for local, state and national infrastructure to be shovel ready with final approvals and properly prioritised for efficiency gains about 6 to 12 months from now. Similalry, property developers ought be encouraged to have their approvals in place in those regions and suburbs with lowest vacancies.

    State and federal governments ought also be looking at the way any grants are structured so as to ensure they maximise employment per dollar of grant.

    Periods of recession/high unemployment are generally the cheapest time to repair, replace and add to infrastructure, provided the recession is allowed to bite a little first. Interest rates are generally lowest at these sorts of times, too.

  4. The real issue is “are they building in the wrong places?”

    Melbourne is suffering from a well stated property glut at the moment but some mining areas like the Pilbara, Darwin and Mackay suffer from a dire shortage of accommodation.

    If construction is contracting it is only because builders are not looking any further than their back yards. There are hundreds of opportunities if companies are willing to look for them out of their usual hunting grounds.

  5. PMI
    PSI
    PCI

    All contracting with just Wages and input costs expanding.
    This is all sure to end well!