Australian construction activity has shown little sign of improvement in the new year, remaining in contraction in January — albeit at a slightly milder rate of decline — according to the Australian Performance of Construction Index.
The Australian PCI, compiled by the Australian Industry Group and Housing Industry Association, rose 1.5 points to 45.9, the third consecutive month the index has been below the critical 50-point level that indicates a contraction in activity.
Reflecting the recent softening in overall industry conditions, the three sub-indexes remained largely unchanged from December: activity at 44.1 points; new orders at 45.6 points; and deliveries from suppliers at 47.6 points.
The index’s compilers say the slightly milder decline in the Australian PCI “was mainly due to a less pronounced reduction in construction industry employment” in January, up 7.6 points to 47.5.
In the construction sub-sectors, commercial construction declined, but conditions moved closer to the 50-point stabilisation mark — up 7.4 points to 49. Engineering construction remained largely unchanged at 44.7 points, but January marked a seventh consecutive month in contraction.
Steeper rates of decline were recorded in both house building (down 5.4 points to 40.9) and apartment building (down 1.4 points to 42.3) activity.
“The easing of activity in the residential construction sub-sectors that was evident in the closing months of 2014 continued in January with house building slipping sharply and apartment building activity easing again,” Ai public policy group director Peter Burn says.
“This, combined with the well-entrenched contraction in engineering construction and a commercial construction sector that remained in negative territory, saw overall construction activity fall for the third consecutive month.
“With new orders in three of the sub-sectors also contracting further in January and new orders in commercial construction treading water, the immediate outlook is not encouraging.”
Burn adds that last week’s cut in interest rates should help to boost activity in the coming months, “even though the long-awaited pick-up in business and household confidence is yet to materialise”.
HIA chief economist Harley Dale describes the January result as “unequivocally disappointing”, but says we should see what February brings.
“Results for the new house building and apartment indices over the last six months are, in aggregate, consistent with healthy levels of residential construction in the short term,” Dale says. “Evidence of further growth potential is what we need and will come from a return to expansion in forthcoming monthly Australian PCI results.
“Let’s also keep an eye on the commercial sector. Should a February rate cut and a slow turnaround in business credit growth gather pace, the PCI will quickly pick up an improving environment.”