The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.2 points to 57.2 points in March (readings above 50 points indicate expansion). This signalled industry wide growth for a 14th consecutive month and at a pace that was slightly higher than in February. It also continued the pick-up in aggregate industry growth seen since November 2017.
Australian PCI® data for March revealed a strong lift in demand with the new orders sub-index (59.9) expanding at its fastest pace in eight months. The activity sub-index (57.0) also indicated a continuation of solid activity growth led by major construction works.
This sustained growth in aggregate industry activity was associated with a continued expansion in deliveries from suppliers (54.7) and an 11th consecutive month of rising employment (55.7) in the Australian PCI®.
Across the four sub-sectors in the Australian PCI® commercial construction activity drove growth in industry conditions in March. The sector expanded at its highest rate in 12½ years (i.e. since the survey’s inception in September 2005) reflecting firm property investor sentiment and improving business conditions more generally.
Engineering construction also gained further solid momentum in March amid reports of new tender wins and on-going support from major infrastructure projects.
House building activity expanded for a 10th month running in line with continued strength in demand, although growth was below the solid seven-month high rate of increase recorded in February. Activity in the more volatile apartment building sector weakened, falling back into slight negative territory following a strengthening in February.
Respondents active in major project work again cited the positive influences on activity from the upswing in government infrastructure spending and solid investment in some key commercial building developments.
Despite some easing in activity growth, house builders remained positive in their assessment of business conditions, citing increases in customer enquiries and resilient new orders.
Apartment building respondents to the Australian PCI® commented on a reduction in investor activity and pockets of over supply that were having a constraining influence on activity.
In short, while housing construction is past its peak, the infrastructure boom continues to drive construction activity north.
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.
