Construction index expands for second straight month

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The national construction sector posted its second straight month of expansion in July, with the Australian Performance of Construction Index rising 0.8 points to 52.6. This marks the strongest monthly performance since November 2013, when it reached 55.2 points.

Construction index expands for second straight month
Construction of an Australian housing sub-division.

The Australian PCI, compiled by the Australian Industry Group (Ai Group) and the Housing Industry Association (HIA), has the 50-point level as the crucial point separating expansion from contraction.

Three of the four construction industry sub-sectors recorded growth, but engineering construction returned to negative territory (down 3.9 points to 47.2) after growing in June. This has been mainly attributed to a decline in resource-related construction activity and a lack of new work to replace completed projects.

On the other hand, consistent with the recent uplift in non-residential building approvals, commercial construction recovered strongly to reach its highest level in six and a half years (up 11.4 points to 61.2). The apartment building sector grew (up 2.7 points to 51.9) while house building continued to expand (down 3.4 points to 53.2

 "The residential and commercial construction sub-sectors are building a head of steam with a welcome strengthening in activity, an upturn in employment, further growth in new orders and more attractive selling prices," Ai Group Director – Public Policy Peter Burn says.

"In July, momentum in these sub-sectors ensured the overall construction sector remained in positive territory despite the ongoing slow-down in engineering construction as investment in mining-related projects fades.

"While house building has been strong for some time and apartment building is at healthy levels, the broadening of growth to include commercial construction is a welcome addition to the mix," Burn adds." With fewer resources committed to expanding the mining sector, there is plenty of engineering construction capacity becoming available to accommodate a lift in infrastructure investment."

HIA Chief Economist Harley Dale says that having a second consecutive month of expansion "is a tick in the box for the Australian economy as well as the construction industry itself".

"Labour market outcomes as well as economic growth will be assisted in 2014/15 by Australia’s construction industry, led by what is already a strong recovery in new home building activity," he says. "The Australian PCI activity and new orders sub-indices for houses and apartments are providing a further signal that the building approvals cycle has peaked, within which approvals should remain at historically elevated levels for a time yet.

"In terms of actual construction activity, a more concerted focus on housing policy reform would greatly assist the prospect of extending the current up-cycle beyond this year," Dale adds.

 

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