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Engineering woes pull construction performance index down

Engineering construction sector performance contracted steeply in April, posting the most subdued activity reading of all Australian construction sectors and playing a major part in an overall 0.3-point drop in the Performance of Construction Index (PCI).

The index, compiled by the Australian Industry Group and the Housing Industry Association, remained in sub-50-point contractionary territory at 45.9 last month — the fourth consecutive month of contraction.

Mining-related project completions and deferrals were seen as the main factors reducing engineering activity and leading the sub-index to drop by 6.3 points to 39.2 points.

Commercial construction also posted a decline of 10.8 points to 45.7, due to patchy conditions across the major commercial building categories and the closure of most commercial building sites over the Easter holiday period.

Other factors having an impact on both engineering and commercial construction were seen to be limited investment activity by clients, a lack of public sector tenders and intense competition for the available work.

On the positive side, however, house and apartment building activity was strong. House construction activity rose for the eighth consecutive month on the back of stronger new orders, increasing by 3.8 points to 54.6.

The apartment sector was the real hero in April, however, not just returning to growth after a three-month contraction, but posting a very solid 12.3-point jump to 57.9 points.

“The deepening slide in engineering construction is overshadowing the growth in residential building activity and the tentative recovery of commercial construction as seen in the expansion in April of new commercial construction orders,” Australian Industry Group Director, Public Policy, Peter Burn, says.

“While there are some promising new engineering construction projects in the resources sector such as the West Pilbara Iron Ore Project boosted by the recent announcement by Aurizon and Baosteel Resources, the pipeline of large resources and energy projects is clearly drying up,” Dr Burn adds. “Against this background, the Commonwealth Budget provides a timely opportunity to boost non-mining infrastructure investment and address business concerns about an excessive withdrawal of public sector demand.

While house building has been the continuing success story of the Australian PCI in 2014, further optimism is justified by an acceleration in the rate of expansion during April, according to Housing Industry Association Economist Diwa Hopkins.

“It is also encouraging to see that, after experiencing three consecutive months of contraction, the apartment building sub-index has returned to expansionary territory in April,” she adds.

“The residential construction sector has a large reach into the broader domestic economy and it will become increasingly important in 2014. This is especially the case given the return to contractionary conditions experienced in the wider construction sector, a situation that has prevailed in 2014 thus far.”

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