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Mon May 17 2021

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Australian construction continues to grow

10 Jul 17 Australia’s construction sector maintained healthy growth in June, expanding for a fifth consecutive month.

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However, there were differences in the sub-sectors. There was some softening of growth though new orders rose to the highest pace of expansion in 11 years.

The figures from the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) fell slightly by 0.7 points to 56.0. Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase.

Ai Group head of policy Peter Burn said: "Australia's construction industry enjoyed another buoyant month in June with house building and commercial construction both recording solid gains and engineering construction holding onto the gains experienced in April and May. The volatile apartment building sub-sector detracted slightly from total construction activity after very strong reported activity in May.”

He added that the immediate outlook for the construction sector as a whole is positive with new orders growing across the board. “New orders for commercial construction have picked up noticeably over recent months after an extended period of weakness,” he said. “In good news for the overall stability of the economy, the orderly easing back from the historically high peaks in apartment building is now being complemented by the long-awaited lift in commercial construction.”

HIA principal economist Tim Reardon said: "After peaking during 2016, the residential building cycle has now entered a new phase, with activity edging back from the all-time high. While overall activity is still currently hovering at an elevated level, we anticipate that this new phase of the cycle will be characterised by a marked contraction in apartment building, while an easing in detached house building is likely to be far more measured. The contrasting conditions in the detached house and apartment markets are already clearly evident in this update to the Australian PCI. With the positive contribution from the residential sector waning, if we are to see the Australian PCI remain in expansionary territory we will need to see a more broad-based recovery in non-residential construction.

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Across the four construction sub-sectors, house-building rebounded strongly in June (up 13.4 points to 59.0), but activity in the more volatile apartment building sub-sector weakened significantly in the wake of May's solid upturn (down 20.2 points to 48.3).

Commercial construction sub-sector remained on a firm footing amid reports of rising project starts (down 0.7 points to 54.5), while engineering construction stabilised in June following two months of solid growth (down 9.3 points to 50.6).

Activity expanded at a softer rate in June - down 3.2 points to 53.1 – as too did supplier deliveries, which dropped 1.9 points to 52.8. New orders lifted slightly from May's solid level to record its fastest pace of expansion in more than 11 years (up 2.1 points to 61.9).

Input prices (down 7.3 points to 66.2) and wages (down 0.6 points to 60.9) remained elevated in June, if at slower rates, while the selling prices sub-index remained in expansion but dropped 2.5 points to 52.4. The ongoing gap between these price series indicates that profit margins remain under pressure amid a highly competitive tender pricing environment.

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