The national construction industry moved back into contraction in October, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) dropping 5.5 points to a 20-month low of 45.9 points (50 points is the threshold that separates expansion from contraction in the Australian PCI®).
This fall in the Australian PCI® in October signalled the industry’s third month of contraction in the past six months as business conditions struggle to maintain momentum.
Across the four sub-sectors in the Australian PCI®, apartment building experienced a significant drop from recent peak conditions, with the sector contracting at its steepest pace in 39 months. House building recorded a third month of decline, suggesting that activity in this sector is continuing to moderate from more robust mid-year levels.
Engineering construction returned to negative territory in October following two months of solid recovery while commercial construction declined at a sharper pace with respondents noting a continuation of patchy conditions across the major project categories. The key activity sub-index in the Australian PCI® fell below 50 points in October (i.e. contracted) after showing signs of a mild recovery in the previous two months.
Of concern for the outlook, new orders lost further ground, with this key sub-index declining at its sharpest rate in five months.
Reflecting this deterioration in operating conditions, construction employment stabilised in October following a strong recovery in September. Deliveries from suppliers contracted for a third consecutive month, and at a sharper rate.
Respondents to the Australian PCI® attributed this month’s deteriorating conditions to a drop in demand and fewer new tender opportunities. Apartment builders also pointed to reduced enquiries and sales in the month.
The fall in engineering construction was attributed to a further reduction in mining and heavy industrial projects. This decline outweighed strengthening demand from new infrastructure work, particularly in NSW and Victoria.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
