First decline for construction in two years

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  • Earthmovers & Exacavators

The first easing in overall construction industry performance in 20 months occurred last month, according to the The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index

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The overall industry is being weighed down by the residential sub-sectors with the continuing fall in apartment work, reinforced by a drop in house building activity.

However, the infrastructure boom concentrated in the south-east corner saw engineering construction extend its run of growth to eighteen months.

"The performance of the Australian construction industry slipped into negative territory in September despite a strong contribution from engineering construction," Australian Industry Group head of policy Peter Burn says.

 "Strong demand from this sub-sector is keeping pressure on input costs and fuelling concerns over personnel shortages across a range of skilled occupations.

"At the same time, the downturn in the residential sub-sectors is associated with falls in industry-wide employment over the past few months with a decline in new orders pointing to the likelihood of a further easing of employment over the period ahead."

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House building declined for a second consecutive month and at the steepest rate since August 2016 (down 7.8 points to 42.0), while apartment building recorded a seventh month of contraction, albeit at a slower rate (up 11.4 points to 44.2).

Engineering construction was the strongest performing area of activity, with its rate of growth lifting strongly (up 10.7 points to 65.7 – an 18th straight month of growth) on the back of an expanding pipeline of publicly funded major projects. Commercial construction remained subdued, in slight negative territory for a third month (up 0.6 point to 49.8).

"Home prices, home building approvals and new home sales are showing a deterioration in conditions in the residential construction sector," HIA Economist Diwa Hopkins says.

"Tighter credit conditions, declining home prices and a large volume of additional housing stock that is steadily flowing onto the market are key factors behind the deterioration.

"The effects of these factors were concentrated in the apartment market, but now we're seeing the effects spill over to the detached house segment of the market.

"We’re expecting both house and apartment building activity to decline in 2019.

"Given the all-time highs from which this decline is occurring; the overall level of building should still remain healthy by historical standards.

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