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The Australian construction industry contracted at a slower rate in March

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World Cement,

Australian construction industry

March 2014 represents the third consecutive month that the Australian PCI® has been below the 50 points level (that separates expansion from contraction) since the construction industry’s return to growth in 4Q13. However, the industry contracted at a milder rate during the month as a result of slower declines in both new orders and activity.

Australian PCI® March highlights

  • The seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) was up by 2 points to 46.2 in March 2014, indicating a milder contraction in industry conditions compared to the previous month.
  • The construction activity sub-index was 48.3 points in March, 3 points above the level of the previous month (seasonally adjusted).
  • House building fell by 1.4 points to 50.8 points, indicating a stabilisation in activity.
  • Apartment building declined by 1 point to 45.6 points.
  • Commercial construction decreased by 3.4 points to 56.5 points.
  • Engineering construction increased by 5.8 points to 45.5 points.
  • The new orders sub-index remained in negative territory, registering 48.3 points in March; however, it increased by 8.8 points compared to February 2014.
  • Employment fell by 3.3 points to 42.7 points due to continued efforts by businesses to contain costs.
  • Input costs rose by 6 points to 72.4 points, while selling prices decreased by 1.4 points to 43.2 points (indicating ongoing pressures on profit margins).

"While there was a consolidation of recent gains in the house building sector and further signs of recovery in commercial construction, these were outweighed in March by a further decline in engineering construction and a pullback in apartment building,” said Peter Burn, Australian Industry Group Director, Public Policy. “As is the case with the broader economy, the rebalancing of the construction sector as mining-related activity slows still has a considerable way to go. The welcome development in the past couple of months comes from improvements in activity and new orders in commercial construction. If this can continue and recent momentum is maintained in the residential construction sectors, attention can turn to the remaining missing link – greater investment in non-mining related engineering construction. In this regard, recent discussions between the states and the commonwealth government are encouraging and the scene is set for a major focus on new infrastructure investment."

Harley Dale, Housing Industry Association Chief Economist, also commented on the Australian construction sector: "Following promising signs at the end of last year, it is disappointing to now observe a full 2014 quarter where the Australian PCI® has again been in contractionary territory. The detached house activity component remains expansionary, if only just, and 2014 should be a healthy year for new home building activity. What the sector and broader economy needs, however, is a sustained recovery in new home building commensurate with average construction levels being considerably higher over coming decades than those achieved over the past 20 years. The prospect of achieving this outcome would be significantly bolstered by a national taxation reform agenda which included the removal of the excessive and inefficient taxes levied on new home building."

CSR and Boral to combine Australian brick operations

CSR Limited and Boral Limited have announced their proposal to form a joint venture to combine their brick operations located on the east coast of Australia, including operations in New South Wales, Victoria, Queensland, South Australia, Tasmania and the ACT. CSR and Boral will submit the proposal to the Australian Competition and Consumer Commission (ACCC). Completion of the transaction is subject to clearance by the ACCC.

CSR will own 60% of the joint venture company and Boral will own 40%, reflecting the relative valuation of the two businesses. There is no cash consideration as part of the proposed joint venture. The proposed transaction will enable both Boral and CSR to access additional operational and overhead efficiencies that would otherwise be unavailable to the parties acting independently.

Adapted from press release by Rosalie Starling

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