Commercial and engineering construction up in August

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August PCI gallery Apartment construction jumped 8.8 points to 56.8 for the month of August August PCI gallery

Apartment construction has returned to expansion along with commercial and engineering construction in the latest Performance of Manufacturing Index (Australian PCI) figures for August.

However, the Ai Group/Housing Industry Association index showed that despite the upturn in those areas, the growth was overshadowed by a sharp 13.8 point decline in house construction, bringing the sub-sector down to 41.1 points and the overall Australian PCI to 46.6 points. Readings below 50 indicate contraction.

"Very weak conditions in the house building sub-sector overshadowed the positive news for apartment building, commercial construction and engineering construction in August and pulled the broader construction industry down for the month," Ai Group head of policy Peter Burn says.

"A pull-back in employment in August after two months of expansion was the lowest reading for this sub-index in five months. Ominously for the near-term, alongside the fall in employment, both new orders and deliveries were negative for the sector as a whole," Burn says.

The new orders sub-index sits at 45.5 points and employment at 47.6, which suggests new home construction has hit a cyclical peak.

"We’re at the peak of the residential construction cycle, but the Australian PCI suggests there is not enough non-residential activity coming along behind," HIA chief economist Harley Dale says.

"When new home construction inevitably peaks by 2016/17, people will look to a plan for further growth. Right now there seems to be nothing, because housing is the convenient bedrock and nobody has the vision to look beyond the short term."

Also of note is the growth in the wages sub-index (up 3.6 points to 66.4) which, when combined with simultaneous decline in selling prices (down 3 points to 47.9) and rising input prices (up 1.7 points to 71.0), means the cost of building houses is rising and profit margins falling. 


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