CONSTRUCTION MODERATES AT END OF 2013

Australian PCI

Dec 2013: 50.8
UK PCI
Nov 2013: 62.6
Germany PCI
Nov 2013: 52.1
Ireland PCI
Nov 2013: 58.8
KEY FINDINGS
The seasonally adjusted Australian Industry Group/Housing Industry Association Australian
Performance of Construction Index (Australian PCI

) registered 50.8 in December 2013,

indicating a third consecutive month of expansion for the national construction industry.
However, the pace of growth moderated in response to more subdued expansions in new
orders and activity. This loss of momentum in December was reflected in a slowdown in
deliveries from suppliers and a renewed decline in employment.
Although the Australian PCI

was above the critical 50 points level (that separates expansion

from contraction), it was 4.4 points lower than the previous month, signalling a moderation in
the industrys rate of growth.
Weighing on total industry activity in December was weaker engineering construction activity,
which moved back into negative territory after two consecutive months of growth. House
building remained the strongest performing sector. The pace of expansion in commercial
construction and apartment construction activity moderated in the month, but both remained
above 50 points.
The selling prices sub-index moved above 50 points (to 54.9 points) for the first time since
October 2010, providing further evidence of strengthening confidence in the sector.
The slower pace of industry growth coincided with reports of fewer new contracts during the
month and more project completions, most notably in the engineering construction sector.
House builders reported that customer enquiries and buyer confidence had remained solid in
December, despite some slowing in new orders. Tight credit conditions and a lack of public
sector tenders were again cited by many as the main constraints on activity.


CONSTRUCTION ACTIVITY AND CAPACITY
In seasonally adjusted terms, the activity sub-index registered 50.7 in December.
This was 3.9 points below the level of the previous month, signalling a slower pace of growth in
activity than in November and the slowest rate of increase in four months.
Underlying this result was a contraction in engineering construction activity combined with
slower growth in the apartment building and commercial construction sectors. This was partially
offset by stronger growth in house building activity.
The rate of capacity utilisation (not seasonally adjusted) rose from 72.0% in November 2013 to
76.1%, the highest rate since December 2010.

ACTIVITY BY SECTOR
House building conditions continued to expand in line with the improving trend seen in new
orders over the previous six months. The sectors rate of growth was also slightly stronger with
the activity sub-index increasing by 1.5 points to 63.5 in December. This was just 1.8 points
below the eight year peak level recorded in October this year.
Apartment building activity expanded at a slower pace with the sectors sub-index falling by 1.9
points to 56.0 in December. This was the fourth consecutive month of expansion in the
apartment building activity sub-index. Respondents continued to note solid levels of investor
activity.
Commercial construction activity also expanded at a slower pace in December. The sectors
sub-index declined by 2.1 points in December to 50.8 points, signalling a near stabilisation in
activity levels relative to the previous month. Respondents noted a continuation of mixed
conditions across the major commercial project categories.
Engineering construction contracted in December after two months of growth, with its sub-index
falling by 6.4 points to 46.1 points. This was the lowest reading in four months. Mining-related
project completions and deferrals were noted as the main factors inhibiting activity.

CONTACT
Peter Burn
Director Public Policy
Ai Group
Tel 02 9466 5503
Harley Dale
Chief Economist
HIA
Tel 02 6345 1329

DECEMBER 2013
NEW ORDERS AND DELIVERIES
New orders (seasonally adjusted) expanded in December (54.3 points), although the rate of
growth moderated by 4.2 points from the recent high recorded in November (58.5 points).
Underlining the recent improvement in industry conditions, this marked the fourth consecutive
month of growth in new orders.
The moderation in new orders growth was apparent across all four construction sectors. In the
engineering and house building sectors it was from a relatively high base following solid
readings in the previous month.
Consistent with the slowing in aggregate demand, deliveries of inputs from suppliers weakened
with the supplier delivery index decreasing by 9.6 points in December to 48.3.This signalled a
contraction in supplier deliveries following two months of growth.

NEW ORDERS BY SECTOR
New orders in the house building sector increased at a slower rate in December with the sub-
index falling by 4.5 points to 58.6 points, after growth picked up to a four year high in
November. It also marked the fourth consecutive month of growth and indicates that housing
demand is continuing to rise.
In apartment construction, the new orders sub-index fell by 4.6 points to 51.3 points. Despite
this moderation in growth, it was the third consecutive month of expansion and a marked
improvement on the recent low point (27.2 points) recorded in May.
For the commercial construction sector, new orders increased at a slightly slower pace, falling
by 0.3 points to 55.8 points. Nevertheless, it continues the expansion in orders seen since
October this year consistent with the more recent improvement (albeit moderate) in approvals.
In the engineering construction sector, the new orders sub-index fell by 6.1 points to 51.4 points
after attaining a six year high in the previous month. Respondents linked this moderation in
demand to the completion of projects and a weaker flow of mining related work.

EMPLOYMENT AND WAGES
The employment sub-index fell to 48.1 points in December, indicating contraction again
following a stabilisation in employment levels during the previous two months.
This suggests that despite the recent improvement in overall industry conditions, few signs
have emerged that this is supporting job creation at an aggregate level.
Growth in wages continued in December, and at a slightly higher rate than in the previous
month, with the wages sub-index increasing by 1.4 points to 57.1 points.




INPUT COSTS AND SELLING PRICES
Input price inflation moderated in December with the input costs sub-index decreasing by 4.6
points in the month to 66.7 points.
Selling prices registered growth in December, with this index increasing by 10 points to 54.9
points. This was the first time this sub-index had moved above 50 points since October 2010,
ending 37 consecutive months of declining prices and intense pressure on profit margins.
The ongoing gap between input price inflation and selling prices demonstrates that businesses
remain under pressure from rising cost burdens while some improvement in pricing freedom
was evident in December.



Index
th|s month
Change from
|ast month
12 month
average

Index
th|s month
Change from
|ast month
12 month
average
Australian PCI

50.8 -4.4 43.9 New Orders 54.3 -4.2 43.7

Activity 50.7 -3.9 44.6 Employment 48.1 -2.2 42.5
Houses 63.5 +1.5 49.6 Deliveries 48.3 -9.6 45.0
Apartments 56.0 -1.9 45.4 Input Prices 66.7 -4.6 69.0
Commercial 50.8 -2.1 40.6 Selling Prices 54.9 +10.0 39.8
Engineering 46.1 -6.4 43.6 Wages 57.1 +1.4 56.9
Capacity Utilisation (%) 76.1 +4.1 67.3


What is the Australian PCI

? The 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.
For further economic analysis and information from the Australian Industry Group, visit http://www.aigroup.com.au/economics.
For further information on international PCI data, visit http://www.markiteconomics.com or http://www.cipsa.com.au.
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