Australian PCI®: Constrained start to 2022 for construction

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Peter Burn, Chief Policy Advisor at the national employer association Ai Group said: "The Australian construction industry continued its volatile run of the past six months with a slump in performance over December and January. This latest downturn was driven by disruptions to labour supply, material supplies and business and household confidence associated with the rapid spread of the Omicron strain. Commercial construction and apartment building reported the steepest contractions while house builders reported a less dramatic fall and engineering construction was on par with its level of activity in November. Despite a lift in new orders for commercial construction, across the broader industry new orders were dragged into contraction by a sharp reduction in orders for apartment building and a smaller drop in orders for houses. As they have done for some time, builders and constructors reported labour shortages although in this period the unavailability of existing staff who were COVID-positive or required to isolate exacerbated the problem. Employment rose despite the slump in activity as new staff were brought on board to partially fill labour supply gaps. With already constrained supply chains further disrupted by labour availability issues upstream, input prices continued to rise very strongly while both wages and selling prices also rose at a fast pace. Builders and constructors are hoping the reductions in COVID-19 infections evident over the past couple of weeks will ease some of the extra constraints evident over the past couple of months but they, like everyone else, are geared for further uncertainty and volatility," Dr Burn said.

HIA Economist, Tom Devitt, said: "Home builders are still limited by the availability of land, labour and materials. The HomeBuilder pipeline has only recently started reaching completion, with many more completions to come. Ongoing demand as part of the shift in homebuyer preferences towards more space and greater amenity will continue to keep builders busy into 2023. The inflationary impact of supply chain issues is relatively contained to fuel prices and home building costs. At their meeting this week, the RBA reinforced its willingness to be patient for supply chain issues to resolve themselves before raising their cash rate. The RBA's first cash rate increase is expected to officially mark the end of the current boom," Mr Devitt said.

Australian PCI® – Key Findings for December 2021 and January 2022:

• The activity indexes for three of the four sectors in the Australian PCI® were well under 50 points in December and January (seasonally adjusted), with the largest drops in the apartments (down 34.9 points to 21.4) and commercial building (down 29.3 points to 39.5) activity indexes. House building slipped further into contraction (down 6.6 points to 40.0) while engineering construction activity also fell sharply but remained relatively neutral (down 16.7 points to 50.0).
• The indexes for activity (down 18.9 points to 41.1), new orders (down 10.8 points to 47.7) and supplier deliveries (down 10.4 points to 34.4) dropped steeply and contracted in December 2021 and January 2022. Queensland was the only state to report activity growth across the period.
• The index for input prices moderated (down 1.5 points to 96.0) in December and January as demand for building materials and house-building supplies remained strong. The selling prices index rose further (up 3.4 points to 81.4) and has been elevated for the past year, indicating builders continue to pass on their cost increases.
• The average wages index nudged up 2.7 points to 76.0 while the employment index eased but remained expansionary (down 2.5 points to 56.5), marking 16 months of employment growth and recovery from the lows of 2020. Capacity utilisation decelerated but remained elevated at 82.3% of available capacity being utilised across the construction industry.

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Results above 50 points indicate expansion. 

Background: The Ai Group/HIA Australian PCI® is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights. An Australian PCI® reading above 50 points indicates that construction activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

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Media Enquiries
Tony Melville (Ai Group) – 0419 190 347
Tom Devitt (HIA Economist) – 0439 514 656