Construction index falls to lowest level since 2013

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The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) fell by 4.8 points to 37.9 points in March, indicating a sharper rate of decline (results below 50 points indicate contraction with lower results indicating a faster rate of contraction). This was the lowest monthly Australian PCI result since May 2013.

PCI-March-20

In a worrying sign for conditions ahead, March also showed a steep decline in the Australian PCI index for new orders. Slower activity on building sites and heightened uncertainty about the outlook led to further declines in employment.

Across the four construction sectors in the Australian PCI, the house building sector indicated modest growth for a fourth consecutive month. Contractions in the apartment and commercial construction sectors were steeper (a lower index result), while the contraction in engineering construction activity eased slightly in March.

Construction businesses reported slow demand and diminishing new orders in March. Economic uncertainty due to the COVID-19 pandemic has dampened client confidence, increased risk aversion and lowered demand. Some businesses reported supply disruptions due to COVID-19 measures, particularly for imported building materials. Others have reported no local impact at this stage.

"There was wide reporting of weakened demand conditions during the month," Ai Group Head of Policy Peter Burn says.

"In terms of the outlook, conditions look more fragile than they have for some time with new orders dropping sharply into negative territory with particular weakness in the pipelines of new work in the commercial and apartment sectors on a nationwide basis."

The HIA noted that the house building sector had started 2020 in positive territory, but acknowledged there were challenges ahead due to the COVID-19 downturn.

"Home building activity has recorded its fourth consecutive month of growth in March providing further evidence that the market started the year off looking up," HIA Economist Angela Lillicrap says.

"Restrictions on trade have impacted the house building new orders index which contracted further in March. Consumers often delay purchasing decisions during times of economic uncertainty."

 

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