Think HBR

Construction edges ahead

The national construction industry moved slightly into growth territory in March, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) increasing by 6.2 points to 50.1 (index readings above 50 points indicate an expansion in activity, with the distance from 50 indicating the rate of the expansion).
 
The improvement in March was largely driven by a solid increase in house building activity (up 10.4 points to 55.8), which ended three months of contraction by expanding at its strongest rate since October 2014. Apartment building activity also continued to strengthen, rising 1.8 points to 54.9 - its healthiest pace in four months. In contrast, mining-related engineering construction weakened further in March (down 1.5 points to 41.2 - a 10-month low), and commercial construction again declined, although the pace of contraction was slower than in February (up 5.2 points to 47.0).
 
A solid improvement was recorded in the new orders sub-index (up 12.1 points to 50.8), which returned to expansion for the first time in five months. Encouragingly, deliveries from suppliers also expanded (up 3.9 points to 50.6), while the activity sub-index contracted at its 
slowest rate since November 2014 (up 4.4 points to 49.1).
 
Ai Group Head of Influence and Policy, Peter Burn, said: "Renewed strength in house and apartment building drove the Australian construction industry back into growth territory in March. The lift in these residential construction sub-sectors from already healthy levels more than compensated for a steeper fall in engineering construction in line with the retreat from investment in mining-related projects and further weakness in commercial construction. While new orders for residential construction look positive for the near term, the time is now ripe for higher levels of investment in commercial construction and particularly in infrastructure."
 
HIA Senior Economist, Shane Garrett, said: "The latest Australian PCI® shows that there has been a return to growth in house building during March, with apartment building continuing to expand. Residential construction is the only area of domestic demand seeing significant growth at this time. It is therefore important that new home building activity does not end up being stifled by the unhelpful policy settings in place, both for the sake of economic growth in the short term and Australia's housing requirements over the longer term. In this regard, the RBA's decision not to reduce interest rates this week adds to uncertainty across the economy and represents a lost opportunity."

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