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Tue August 04 2020

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Australia’s construction activity continues to decline

7 Feb 19 The continuing decline in Australia's construction sector eased only slightly last month.

The Australian Performance of Construction Index (PCI), which is produced by Australian Industry Group and Housing Industry Association, remained in negative territory in January. There was only a marginal easing in the rate of decline, with a rise of 0.5 points to 43.1. Readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease.

Ai Group head of policy Peter Burn said: "The adjustment in the residential construction sub-sectors continued in January with both apartment and house building performance slipping further. While the decline in activity is now well-established, levels of activity remain respectable by historical standards reflecting the dimensions of the preceding boom.

“The performance of the commercial construction and engineering construction sub-sectors also remained in negative territory. With infrastructure projects still providing major sources of activity, engineering construction looks set to underpin the overall construction sector in the foreseeable future. Sector-wide employment was lower in January having held up amid shrinking activity in recent months.”

All four construction sectors in the Australian PCI contracted in January, with a further weakening in the house-building (down 1.9 points to 34.4) and apartment-building sectors (down 1.6 points to 24.9). Commercial construction was again subdued (down 0.5 points to 44.9) while engineering construction declined for a second month (down 3.2 points to 43.3) amid reports of a lower volume of new work in January to replace end-of-year completions.

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HIA senior economist Geordan Murray said: "The Australian PCI continues to flag a slowdown in construction activity. The downturn in the housing markets of Sydney and Melbourne are weighing on the residential building sector. Over a million new homes have been completed in the last five years and there are still another 200,000 under construction. Having made substantial headway in alleviating the housing shortfall the acute price pressures are dissipating – rental price growth has slowed and the median dwelling prices for the major capital cities are declining.

“The residential building industry is now adjusting to weaker market signals and the drop in the Australian PCI new orders sub-index suggests that there is less residential building activity entering the pipeline. In 2019 we will see building activity continue to drop back from the record levels achieved over the last few years."

The input prices index remained elevated in January (up 2.6 points to 74.6), while growth in wages also continued (up 2.8 points to 63.7).

The selling prices index continued to contract in January, albeit at a slower rate (up 3.6 points to 44.2), with the ongoing gap between the input and selling prices indices indicating that profit margins remain tight across the construction industry.

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