The Australian Industry Group (AIG) has released its Performance of Construction Index (PCI) for June, which is stuck firmly in recession, despite registering a o.8 rise to 47.8 (readings below 50 points indicate contraction):
The Australian PCI® has now been below the 50 point level that separates expansion from contraction in six of the past seven months, largely in response to on-going declines in miningrelated engineering construction and commercial construction.
The milder decline in the Australian PCI® in May was due to less pronounced reductions in new orders and employment while activity moved very close to stabilisation. However, deliveries from suppliers contracted at a steeper rate with businesses attributing this to the overall sluggish demand conditions.
All four sub-sectors of the Australian PCI® contracted (i.e. below 50 points) in May. Activity in the house building sector turned negative for the first time in three months while a steeper rate of decline was evident in apartment building activity.
Engineering and commercial construction continued to contract in response to the scaling back in major project activity, although for both sectors rates of declines moderated from April.
Respondents to the Australian PCI® that reported declines in activity largely attributed this to a lack of tendering opportunities, project delays and continued soft investment activity by clients.
House builders noted an easing in customer enquiries and lower sales in May amid competitive market conditions. Local council planning delays and land supply bottlenecks were other factors reported as constraining activity in the housing sector.
The slide in dwelling construction is a worry, given it has been one of the economy’s few growth drivers. Definitely something to watch.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
