Subdued start to 2015 for the Australian construction industry

The national construction industry remained in contraction in January, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI^®) rising 1.5 points to 45.9. January is the third consecutive month the index has been below the critical 50-point level – the activity (44.1 points), new orders (45.6 points) and deliveries from suppliers (47.6 points) sub-indexes all remained largely unchanged from December. The slightly milder decline in the Australian PCI^® was mainly due to a less pronounced reduction in construction industry employment this month (up 7.6 points to 47.5).

All four construction sub-sectors contracted, with steeper rates of decline evident in both house (down 5.4 points to 40.9) and apartment building (down 1.4 points to 42.3) activity. Engineering construction remained largely unchanged at 44.7 points to record a seventh consecutive month in contraction. Commercial construction also declined, but conditions moved closer to stabilisation (up 7.4 points to 49.0).

"The easing of activity in the residential construction sub-sectors that was evident in the closing months of 2014 continued in January with house building slipping sharply and apartment building activity easing again,” said Ai Group Director – Public Policy, Peter Burn. “This, combined with the well-entrenched contraction in engineering construction and a commercial construction sector that remained in negative territory, saw overall construction activity fall for the third consecutive month. With new orders in three of the sub-sectors also contracting further in January and new orders in commercial construction treading water, the immediate outlook is not encouraging. This week's cut in interest rates should boost activity in the months ahead, even though the long-awaited pick-up in business and household confidence is yet to materialise."

"The January Australian PCI^® result is unequivocally disappointing, but let's see what February brings,” commented HIA Chief Economist, Harley Dale. “Results for the new house building and apartment indices over the last six months are, in aggregate, consistent with healthy levels of residential construction in the short term. Evidence of further growth potential is what we need and will come from a return to expansion in forthcoming monthly Australian PCI^® results. Let's also keep an eye on the commercial sector. Should a February rate cut and a slow turnaround in business credit growth gather pace, the PCI will quickly pick up an improving environment."

Adapted from press release by Rosalie Starling

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