Australia records further decline in construction activity in December

According to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI^®), which fell by 1.0 point to 44.4 points, the Australian construction industry contracted at a slightly steeper rate in December 2014. Declines in activity and new orders continued during the month, with the activity sub-index dropping a further 2.9 points to 44.5 points. New orders recovered slightly (up 2.2 points to 46.1 points), but the sub-index remained in contraction for a second month. Consequently, further cuts in employment (down 2.1 points to 39.9 points) and in deliveries from suppliers (down 1.7 points to 48.4 points) were seen.

All four construction sub-sectors in the Australian PCI^® (apartment building, house building, commercial and engineering) contracted during the month. Following five months of growth, the apartment building activity sub-index fell to its lowest level in 16 months (down 14.3 points to 43.7 points). House building activity contracted for the first time since August 2013 (down 5.5 points to 46.3 points), while the commercial sub-sector experienced a decline of 4.4 points to 41.6 points. Engineering construction contracted at approximately the same rate as the previous month (45.2 points).

Ai Group Chief Economist, Julie Toth, said: "recovery in the construction industry was looking very promising through the middle of 2014, particularly in the housing and apartment sectors. In the final months of 2014 however, this much-anticipated recovery seems to have lost its momentum; we saw a noticeable deterioration across most of the key activity indicators for house building and apartment construction in November and December. Commercial construction has failed to pick up pace, reflecting an ongoing lack of demand for new commercial and industrial facilities, while engineering construction is now experiencing the well-documented downswing in mining-related projects, as well as a decline in public sector projects. The lack of growth in new orders for construction in the final two months of 2014 is of particular concern to the outlook, especially in the commercial and engineering sub-sectors. In housing, new orders look to have stabilized after growing strongly for much of 2014. This stability bodes well for the pipeline of work that will commence in the all-important new housing sector in 2015."

HIA Economist, Diwa Hopkins, said: "The synchronised decline in each of the activity components of the Australian PCI^® in December 2014 is obviously a disappointing result. Unfortunately, this weakness filtered through to the construction labour market, with the employment sub-index indicating cuts in the industry’s employment levels. Furthermore, the one bright spot of Australian PCI^® – its residential construction components - slipped into contractionary territory. Strong growth in new home building had been buoying not only Australia’s construction sector, but also the wider economy throughout 2014. Nevertheless, we still expect activity in this sub-sector to remain elevated in 2015, even if lower than the record level experienced in the year just passed."

Adapted from press release by Rosalie Starling

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