AIG construction PMI lifts on housing bubble


By Leith van Onselen

The Australian Industry Group (AIG) released its performance of construction index (PCI), which registered a 6.7 points increase to 53.8 points:

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The national construction industry expanded in August after declining or remaining stable over the previous nine months. The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 6.7 points to 53.8 points in the month (readings above 50 points indicate expansion). This was the highest reading for the index since September 2014 (59.1 points).

The rebound in the Australian PCI® in August was driven by a solid improvement in the new orders sub-index which returned to growth (i.e. above 50 points) for the first time in five months.

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Conditions in August were also supported by an expansion in the activity sub-index (following nine months of contraction) and an upturn in employment. However, a further contraction was recorded in supplier deliveries, which fell for a fifth consecutive month.

Across the four sub-sectors in the Australian PCI®, growth in August was led by apartment building, which expanded for the fifth time in seven months and at the second strongest rate this year. House building also recorded growth in August after stabilising in the previous month.

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Commercial construction expanded solidly in August following declines in the previous nine months. Businesses in the sector indicated that new tender wins had supported activity levels. In contrast, engineering construction activity remained in negative territory, declining for a fourteenth consecutive month due to the on-going decline in mining-related investment.

Residential builders were generally positive, noting that business conditions remained favourable, particularly in the apartment sector. This was generally linked to increased new orders, low interest rates and the release of land for new housing developments. However, on a broader industry front, a range of factors continued to weigh on business conditions, including subdued private sector commercial and industrial investment, a highly competitive pricing environment and tight margins.

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About the author
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.