Construction industry recovery strengthens

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Construction activity improved by a further 6.9 points in November, a second consecutive month of positive conditions and the strongest monthly result since April 2018, according to the Australian Industry Group-Housing Industry Association Australian Performance of Construction Index.

Construction industry recovery strengthens
78 per cent of available capacity is being utilised across the construction industry.

Three of the four sectors in the Australian PCI recovered strongly in November, with only the apartment sector still contracting (down 6.2 points to 40.9) amid reduced demand from developers and investors.

The indices for house building activity and new orders reached new record highs in November, with house builders noting the success of government grants plus low interest rates in supporting demand for new houses and renovations.

Builders in commercial and engineering construction said activity and forward orders are returning to a more 'normal' pace in Q4.

"The Australian construction sector grew more strongly in November with both activity and employment decisively stronger in the month," Australian Industry Group Head of Policy Peter Burn says.

"House building was the cornerstone of the lift in performance with support from commercial and engineering construction.

"Apartment building remains in the contractionary state it has been in for more than two years and, with question marks over population growth and falling new orders, this sector is the major dampener on the otherwise encouraging outlook for the broader construction sector.

"Looking to the months ahead, new orders for house building and commercial construction lifted promisingly while new infrastructure plans are yet to translate into a growing pipeline of new orders for engineering construction.

"In part due to fiscal and monetary policy support, the construction sector is looking ready to play a major role in consolidating the general economic recovery into 2021," Burn says.

Housing Industry Association Economist Angela Lillicrap says the divide between in the outlook facing detached house builders and apartment builders is continuing to diverge.

"The impact of low interest rates, the HomeBuilder program and changes in consumer preferences have boosted demand for detached houses," she says.

"The apartment building activity index continues to show that the market is contracting. The shift in population away from metropolitan Sydney and Melbourne is expected to continue until the return of overseas migration."

 Key Findings

  • Conditions were positive and improving in three of the four sectors in November, with only apartment building showing contraction (down 6.2 points). House building activity (up 5.7 points to 67.0) was up strongly in all states, buoyed by (temporary) government grants, low interest rates and the relaxation of COVID-19 activity restrictions.
  • The activity index climbed by 6.9 points to 55.3 in November, indicating that activity levels are now recovering. Activity improved strongly in three of the four sectors, and in all states, with the activity index for housing hitting a record high in November in response to government grants, low interest rates and pent-up demand.
  • The new orders index moderated by 3.8 points to 51.7 in November, with new orders for house building surging to a further record high (68.1 points). In contrast, new orders for apartments plunged deeper and orders for commercial and engineering projects dipped into mild contraction again.
  • The supplier deliveries index remained unchanged in November at the relatively elevated level of 58.8 points after falling to a record low in May. Participants appear to be catching up on orders from suppliers after freight disruptions
  • The index for input prices rose by 1.8 points to 76.3 in November as demand for building materials and house-building supplies surged. The selling prices index recovered into expansion (up 1.1 points to 51.5) after a lengthy period of stagnation.
  • The average wages index was steady at 59.2 points in November and the employment index jumped 6.6 points to 57.6 as activity resumed in more locations. Capacity utilisation increased to its highest monthly result since October 2018 (78 per cent of available capacity being utilised across the construction industry).

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