Australian PCI®: Construction boom stalls with rising cost pressures

Download full report

Peter Burn, Chief Policy Advisor at the national employer association Ai Group said: "Construction industry activity fell in May in the face of ongoing disruptions to the supply of inputs; difficulties filling positions; and the solid pace of cost increases. These forces are pushing out project completion times. Activity fell in the house and apartment sectors and in commercial construction. Engineering construction was mildly higher in May. Across the sector employment was up and new orders continue to rise although both grew at significantly lower rates this month. Costs are rising at a rapid rate and wages are growing strongly. Selling prices also continue to rise as constructors and builders recover some of their higher costs in the market although the inability of some to pass on costs that were not anticipated when contracts were put in place is testing the viability of some industry members," Dr Burn said.

HIA Economist, Tom Devitt, said: "Supply constraints weighed on home building in May. These constraints have resulted in rapid increases in the cost of construction and extended construction time frames. Added to this is the enormous volume of home building and renovations work under construction and approved-but-not-yet-commenced, as well as the still-elevated number of new home sales and renovations jobs that continue to enter this pipeline. These supply and demand factors will keep Australia’s already-stretched builders busy, with the volume of homes under construction remaining very elevated into 2024. Affordability constraints and the return of overseas migrants, students and tourists will also further support multi-unit construction. While this will delay the adverse impact of rising rates on the industry, and therefore the wider economy, it will also ensure that the shortage of building materials and labour will continue to be the main pinch point for the industry," Mr Devitt said.

Australian PCI® – Key Findings for May 2022:

• Three of the four construction sectors – housing, apartments and commercial – were in contraction in May. All saw activity fall significantly from the previous month.
• House builders reported concerns about increased building costs, combined with higher interest rates as dampening customer demand. New orders fell significantly in May.
• Labour shortages and delays in supplier deliveries continued to constrain activity. Builders reported rapidly growing input and labour prices as their key concern.
• Capacity utilisation moderated slightly to 85.6% but remains elevated as it has been for much of 2021 and 2022.

View all Economic Indicators 

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.

NOW AVAILABLE:
All 2022 release dates for Australian PCI®

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