House building activity expands while apartment building slows

The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) dropped by 1.9 points to 51.2 in March, indicating a slower rate of industry growth following February's solid recovery (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

"The continued strength of house building kept the overall construction sector in positive territory in March. With apartment activity trending down from historic highs, with commercial construction patchy at best and with engineering construction dominated by the wind-down of mining and energy-related projects, growth is relying heavily on the housing subsector,” said Ai Group Head of Policy Peter Burn.

The outlook for the next few months is more of the same with house builders reporting strong growth in new orders whereas for the rest of the sector new orders were down sharply in the month, said Burn.

Australian PCI — key findings for March: 

• The softer Australian PCI result for March was largely due to the new orders subindex returning to contraction (down 3.7 points to 47.5), which in turn contributed to a slower pace of expansion in industry activity and deliveries from suppliers.
• House building activity drove industry growth in March, expanding for a third consecutive month and at its fastest pace since mid-2016 (up 0.4 points to 61.3). In contrast, apartment building activity fell further into negative territory, contracting for a seventh consecutive month (down 2.5 points to 43.6).
• Weaker conditions were evident in commercial (down 4.8 points to 48.8) and engineering construction (down 5.4 points to 48.5), with both subsectors falling into negative territory after solid improvements in February.
• Pressure from rising wages (up 1.4 points to 64.4) and input prices (down 1.6 points to 74.5) is partially being passed on, with the selling prices subindex remaining in expansion (down 0.4 points to 55.6), but profit margins remain under pressure amid a highly competitive tender pricing environment.