PERFORMANCE OF CONSTRUCTION INDEX

AUGUST 2013
AUG
60 55

Construction Downturn Continues in August

Key Findings

43.7
65
Increasing

50 45 40 35

The national construction industry continued to decline in August,

The seasonally adjusted Australian Industry Group/ Housing Industry

Aug 10

Nov 10

Feb 11

May 11

Aug 11

Nov 11

Feb 12

May 12

Aug 12

Nov 12

Feb 13

May 13

Aug 13

25

UK CONSTRUCTION INDEX*

Association Australian Performance of Construction Index (Australian PCI) registered 43.7 in August, 0.4 points below the reading in July. The Australian PCI appears to be very slowly improving (in 3 mma terms) but has now remained below the critical 50 points level (that separates expansion from contraction) for 39 consecutive months. Although house building weakened marginally in August, the sector remained close to the point of stabilisation for a second consecutive month. Declines in both engineering construction and apartment building activity were slightly steeper in August. In contrast, commercial construction contracted at a slower rate following a sharp deterioration in July. Encouragingly, house builders indicated that confidence among prospective buyers increased in August. However, a number of businesses continued to point to the negative influences of tight credit conditions, slowing mining sector activity and weak investor confidence. The Federal election and uncertainty surrounding the economic outlook were also perceived to be weighing on business conditions.

60 55 Diffusion Index 50 45 40 35 30

australiaN pCi

with the rate of contraction broadly unchanged from July.

JUL FEB

30

Decreasing

JUL

60 55 50

Australian

PCI

3 month moving average

57.0

45 40 35

Construction activity and Capacity

The Australian PCI activity sub-index registered 43.9 in August

65 60 55 Diffusion Index 50 45 40 35 30 25
May 11 May 12 May 13 Aug 10 Nov 10 Feb 11 Aug 11 Nov 11 Feb 12 Aug 12 Nov 12 Feb 13 Aug 13

85 80 75 70 65 60 55 50 Capacity Utilisation % (unadjusted)

JUN MAR FEB

30

(seasonally adjusted).
This was just 0.3 points above the level in July, indicating little

GERMANY CONSTRUCTION INDEX*

change in the rate of decline in total industry activity. Subdued demand and a lack of new projects drove the continued contraction in industry activity levels. The rate of capacity utilisation (unadjusted) was only slightly higher in the month, rising by one percentage point to 65% in August.

JUL

60 55 50

20

51.5

45 40 35

Activity

Capacity Utilisation

Activity by sector
The house building activity sub-index fell by 0.3 points to 49.0 in

70
Increasing

JUN MAR FEB

65 60 55 Diffusion Index 50 45

30

IRELAND CONSTRUCTION INDEX*

August. At just 1.0 point below the 50-point mark that separates expansion from contraction, this is an encouraging sign that activity in the sector is close to stabilising. The rate of decline in commercial construction activity moderated, with the sub-index rising by 4.5 points to 39.1 points. This was the second highest reading for this sub-sector in eight months. The apartment building sector remained subdued with a sub-index reading of 37.7 points in August. This was 0.7 points below the level in July, indicating a slightly steeper rate of contraction in activity. Engineering construction activity also weakened with the sub-index decreasing by 1.4 points in August to 42.6 points. Weaker demand from the resources sector was noted as the main factor inhibiting activity.

JUL

60 55 50 45 40 35

35 30 25 20
Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13

Houses

Apartments

Commercial

Engineering

Decreasing

40

43.4

MAR JUN FEB

30

Supported by:
*Prepared by Markit Economics

www.markiteconomics.com

 New orders contracted in August for the 39th consecutive month. However, the rate of decline was only slightly steeper than in July

60 Diffusion Index

Increasing

New Orders and Deliveries

with the new orders index declining by 0.9 points to 42.0 points (seasonally adjusted). Although all four sub-sectors recorded a decline in new orders in August (with readings below 50 points), only engineering construction experienced a steeper rate of contraction in the month. Deliveries of inputs from suppliers continued to decline, albeit at a slower rate. The supplier delivery index rose by 1.7 points in August to 45.5 points.

70

What is the AUSTRALIAN PCI?

The Australian Industry Group Performance of Construction Index (Australian PCI) in conjunction with the Housing Industry Association 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 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. More information can be obtained from the Ai Group website www.aigroup.com.au

50

30

20
Aug 10 Nov 10 May 11 Aug 11 Nov 11 May 12 Aug 12 Nov 12 May 13 Aug 13
Decreasing Increasing

Feb 11

Feb 12

New Orders

Deliveries

New orders by sector

The contraction of new orders in the house building sector was

80 70 60 Diffusion Index 50 40 30 20 10
Aug 10 Nov 10 May 11 Aug 11 Nov 11 May 12 Aug 12 Nov 12 May 13 Aug 13 Feb 11 Feb 12 Feb 13

less pronounced in August with the sub-index rising by 4.8 points to 48.0 points (seasonally adjusted). This was the highest reading (and therefore the slowest rate of contraction) in six months. In apartment building, the rate of decline in new orders moderated for a third consecutive month with the sub-index rising by 5.7 points to 45.3 points. This was the slowest rate of decline in three years. Demand conditions remain subdued in the commercial construction sector, with the decline in new orders easing only slightly from a low base. This sub-index increased by 1.4 points to 39.1 points in August. In contrast, new orders in the engineering construction sector fell markedly by 8.9 points to 37.9, confirming the weakening in the investment pipeline for major projects that has been evident in other data sources.

Feb 13

Decreasing

40

CONTACT
Peter Burn Director Public Policy Ai Group Tel 02 9466 5503 Harley Dale Chief Economist HIA Tel 02 6345 1329 Markit Economics www.markiteconomics.com
Decreasing

Houses

Apartments

Commercial

Engineering

Employment and Wages

Employment contracted at a steeper rate in August. The employment sub-index registered 44.6 points in August, a fall Insufficient workloads and weak levels of incoming business were
Diffusion Index

80 70 60 50 40 30 20
Aug 10 Nov 10 Feb 11 Aug 11 Nov 11 Feb 12 Aug 12 Nov 12 Feb 13 May 11 May 12 May 13 Aug 13

of 1.6 points from July (seasonally adjusted). the main factors behind the on-going decline in employment. Growth in wages continued in August, albeit at a slower rate with the wages sub-index decreasing by 7.5 points to 58.7 points (unadjusted).

Increasing

Employment

Average Wages

Input costs and selling prices

The rate of increase in input costs remained elevated in August.

100 90
Increasing

The input costs sub-index fell by 1.5 points to 69.7 points, signalling a slight easing in the rate of growth. Reflecting highly competitive market conditions, selling prices declined for the 34th consecutive month. However, the rate of decline moderated this month, with the sub-index rising by 6.1 points to 39.6 points. These results highlight the continued pressures on the profit margins of construction businesses, amid rising cost burdens and a highly competitive pricing environment.

80 Diffusion Index 70 60 50

The Australian Industry Group, 2013 This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation, no part may be reproduced by any process or means without the prior written permission of The Australian Industry Group. Disclaimer The Australian Industry Group provides information services to its members and others, which include economic and industry policy and forecasting services. None of the information provided here is represented or implied to be legal, accounting, financial or investment advice and does not constitute financial product advice. The Australian Industry Group does not invite and does not expect any person to act or rely on any statement, opinion, representation or interference expressed or implied in this publication. The Australian Industry Group has compiled this information in conjunction with information provided by HIA. All readers must make their own enquiries and obtain their own professional advice in relation to any issue or matter referred to herein before making any financial or other decision. The Australian Industry Group accepts no responsibility for any act or omission by any person relying in whole or in part upon the contents of thispublication.
*Prepared by Markit Economics
AIG13404

30 20
Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13

Input Prices

Average Selling prices

AUSTRALIAN PCI*
Activity - Houses - Apartments - Commercial - Engineering New Orders Employment Deliveries Input Prices Selling Prices Wages Capacity(%) August 2013 July 2013 Monthly Change Direction Rate of Change Trend ** (Months) 39 40 6 40 38 6 39 39 37 96 34 53 na Australian PCI 43.7 43.9 49.0 37.7 39.1 42.6 42.0 44.6 45.5 69.7 39.6 58.7 65.0 44.1 43.6 49.3 38.4 34.6 44.0 42.9 46.2 43.8 71.2 33.5 66.2 64.0 -0.4 Contracting +0.3 Contracting -0.3 Contracting -0.7 Contracting +4.5 Contracting -1.4 Contracting -0.9 Contracting -1.6 Contracting +1.7 Contracting -1.5 Expanding +6.1 Contracting -7.5 Expanding na Faster Slower Faster Faster Slower Faster Faster Faster Slower Slower Slower Slower na

+1.0% point

Results are based on the responses of around 150 businesses. Forward seasonal factors were generated by the ABS in April 2013. **Number of months moving in current direction

Supported by:
www.markiteconomics.com

Decreasing

40