The Australian Industry Group (AIG) has released its Performance of Construction Index (PSI) for July, which reveals that Australia’s construction sector is stuck in recession, recording a reading of 47.1, up 0.7 points from June:
The national construction industry contracted for a fourth month in July, as reducing activity in the engineering sector continued to outweigh strengthening activity across the residential building sectors.
The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 0.7 points to 47.1 points in July, signalling a slower pace of contraction than in June. The three-month moving average of The Australian PCI® was unchanged in July, at 47.1 points.
All of the sub-indexes in the Australian PCI®, including activity, new orders, employment and deliveries from suppliers remained in contraction in July.
Across the four sectors of the construction industry in the Australian PCI®, apartment building performed the best in July. Activity in this sector grew at its fastest pace since August 2014.
Activity in the house building sector stabilised in July after three months of expansion.
In contrast, engineering construction contracted for a 13th consecutive month in July, reflecting the ongoing reduction in mining-related investment and a declining pipeline of new projects.
Commercial construction activity remained in contraction this month, reflecting prolonged weakness in non-residential building approvals and commencements.
Respondents to the Australian PCI® reported an ongoing lack of tender opportunities across the commercial, industrial, engineering and public sectors, while prices and margins came under further pressure from intensifying competition among businesses. Residential builders from NSW and Victoria remain generally positive about their outlook, but respondents from other states, particularly SA and WA, expressed concern about their local residential building market and about weakening economic conditions and labour markets in those states.
As shown below, dwelling construction (particularly apartments) continues to expand, but is being more than offset by falling engineering and commercial construction:
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New orders and deliveries are contracting:
And forward orders for dwelling construction are fairly weak, indicating a future slowdown:
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Meanwhile, employment in the construction sector is contracting, although wages are at least rising:
Overall, a fairly sombre report, with weakness present outside of apartment building.
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.
