Construction sector may be on cusp of recovery

The construction sector could be on the cusp of a long-awaited recovery, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index recording expansion in the sector for the first time in more than three years.

The index jumped 6.8 points to 54.4 in October - passing the critical 50 point mark which indicates expansion.

‘’Consolidation over the next few months will show whether a sustained recovery will be built on the combination of renewed confidence and low interest rates during the first half of 2014,’’ Australian Industry Group director, public policy, Peter Burn, said.

He was backed up by Housing Industry Association chief economist, Harley Dale, who said: “The Australian PCI breaking into positive territory again for the first time in over three years is a milestone moment.

‘’The indications in recent months have been that this outcome was achievable, but there was a false dawn earlier in the year so this confirmation is heartening news for the construction sector. ‘’

The positive reading was led by the residential construction sub-sectors, however, all the sectors were back in the black with the apartments sub-sector recording the strongest growth in October – up 8.5 points to 66.2. Housing also rose strongly - by 3.8 points to 65.3 after a solid upturn in the previous month.

The new orders sub-index was 3.5 points higher at 54.3 reflecting an improvement in confidence and overall demand across construction in the month.

“The sharp lift of the index in October, which comes after a gradual easing of contractionary conditions over the past six months, is certainly welcome,’’ Burn said.

‘’Consolidation over the next few months will show whether a sustained recovery will be built on the combination of renewed confidence and low interest rates during the first half of 2014.

‘’The residential construction sub-sectors are showing most promise while commercial construction activity lifted from a low base and remains more fragile. Engineering construction recorded a welcome return to positive territory despite the cloud hanging over the near-to-medium-term prospects for this sub-sector as mining-related construction retreats from boom conditions.”

After his ‘milestone’ comment, Dale said: ‘’The indications in recent months have been that this outcome was achievable, but there was a false dawn earlier in the year so this confirmation is heartening news.

‘’The residential sub-sectors are leading the way. What appears a sustained improvement in both the house and apartment activity and new orders sub-indices is consistent with a broader recovery evident for leading indicators of new home building.

‘’The activity and new orders sub-indices for houses indicate further upward momentum ahead for detached house building approvals, itself a further tick in the box for a sustained new home building recovery.

‘’It will be important for recent gains in the Australian PCI to be maintained and built upon, but the results of recent months have certainly been pleasing.”

Australian PCI key findings for October:

• After almost three and half years in contraction – the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) expanded in October lifting 6.8 points to 54.4.

• Across the sub-sectors:  apartments (66.2) and house building (65.3) expanded at higher rates, while commercial construction (52.6) and engineering construction (52.7) returned to growth.

• Overall construction activity lifted 5.4 points to 57.3.

• New orders across the sector were stronger at 54.3 – reflecting the activity improvements across all sub-sectors.

• After 40 months of decline, employment increased to 52.5 in October.

• Selling prices continued to decline, although at a slower rate (48.9).

• The increase in input prices was stronger in October (72.1).