Rising costs and supply chain issues slowed the growth rate of the construction industry in May, despite an elevated number of jobs in the pipeline
After months of positive conditions, Australia’s construction industry has stalled, according to an industry performance index.
The PCI’s May recording indicated rising costs and prolonged supply chain issues have continued to put pressure on the industry as overall construction fell.
The Australian Performance of Construction Index (PCI), which is produced by the Australian Industry Group (Ai Group) and Housing Industry Association (HIA) each month, fell by 5.5 points across May.
Any measurement in the index above 50 suggests the industry is still expanding, while numbers below that mark indicate contraction.
The month-to-month decrease, which finished at 50.4 points, means Australia’s construction industry is now teetering on contraction.
Across construction’s four subcategories, three went into contraction and all decreased from the April’s figure. Commercial building experienced the greatest discrepancy, falling -11.8 points to 46.9, while home building (down 9.9 to 43.5) and apartment building (-8.3 to 46.2) also contracted.
Engineering activity dropped just -0.8 points, enough to keep it in a state of expansion at 51.8 points.
Chief policy advisor at Ai Group Peter Burn says the decrease in activity was due to the ongoing worker shortages, supply chain issues and rising input costs.
“Construction industry activity fell in May in the face of ongoing disruptions to the supply of inputs; difficulties filling positions; and the solid pace of cost increases. These forces are pushing out project completion times,” he says.
HIA economist Tom Devitt explained further, suggesting the rising cost of construction has not only caused construction activity to fall, but has also delayed approvals for new home construction.
“Supply constraints weighed on home building in May. These constraints have resulted in rapid increases in the cost of construction and extended construction time frames,” Devitt says.
“Added to this is the enormous volume of home building and renovations work under construction and approved-but-not-yet-commenced, as well as the still-elevated number of new home sales and renovations jobs that continue to enter this pipeline.
“These supply and demand factors will keep Australia’s already-stretched builders busy, with the volume of homes under construction remaining very elevated into 2024.”
Elsewhere in the PCI, the number of new orders fell significantly by -5.3, but remained in a state of expansion at 53.3.
Rapidly growing input and labour prices were reported by builders as a key concern. That figure dipped by -3.2 points yet remains at an extremely elevated reading at 91.2.
Selling prices continued its downward trajectory (down -0.7) to 80.4, representing 19 months of continued expansion.
The construction industry’s labour problem was exacerbated in the index, with employment dropping -7.3 points. Following the sharp rise experienced in March, the employment index has now fallen by -12.4 points in April and May.
Wages also dipped by 0.7 points to 76.1.
“Across the sector employment was up and new orders continue to rise although both grew at significantly lower rates this month. Costs are rising at a rapid rate and wages are growing strongly,” Burn says.
“Selling prices also continue to rise as constructors and builders recover some of their higher costs in the market although the inability of some to pass on costs that were not anticipated when contracts were put in place is testing the viability of some industry members.”