PERFORMANCE OF CONSTRUCTION INDEX

March 2013
MAR
60 55

Construction Declines at Steeper Rate in March

Key Findings

39.0
65
Increasing

50 45 40 35

The national construction industry moved deeper into negative

UK CONSTRUCTION INDEX*

territory in March, following the solid improvement recorded in the previous month. The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI) declined by 6.6 points in March to 39.0. The index has now remained below the critical 50 points level (that separates expansion from contraction) for 34 consecutive months. Underlying the weaker conditions in March were steeper contractions in activity, new orders and deliveries from suppliers. This saw employment contract at a sharper rate following the substantial moderation of the previous month. By sector, there was a return to declining activity in house building and engineering construction while the contraction in apartment building activity was the sharpest in five months. Commercial construction remained the weakest performing sector although its rate of decline was broadly unchanged over the month. Most businesses linked the on-going decline in activity to subdued levels of incoming work and a shortage of new tender opportunities. Businesses also cited tight credit conditions, project delays and weak investor sentiment as key dampening influences on activity.

60 55 Diffusion Index 50 45 40 35 30 25

australiaN pCi

FEB MAR FEB

30

Decreasing

FEB

60 55 50 45 40 35

Construction activity and Capacity

In seasonally adjusted terms, the activity sub-index registered 39.0

65 60 55 Diffusion Index 50 45 40 35 30 25
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

46.8

Australian

PCI

3 month moving average

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

JAN MAR FEB

30

GERMANY CONSTRUCTION INDEX*

in March. This was 7.6 points below the level in the previous month, indicating a steeper rate of contraction in total industry activity. This result reflected the fragility of overall demand with new orders and deliveries from suppliers declining more sharply in the month. Consistent with this, the rate of capacity utilisation (not seasonally adjusted) fell from 66.6% in February 2013 to 63.7%, the weakest reading over the past five months.

FEB

60 55

43.8

50 45 40 35

20

Activity

Capacity Utilisation

Activity by sector
House building activity stepped back into negative territory after

70
Increasing

JAN MAR FEB

65 60 55 Diffusion Index 50 45

30

IRELAND CONSTRUCTION INDEX*

Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

expanding in February for the first time in almost three years. The sectors sub-index declined by 4.5 points to 47.0 in March. A return to negative territory was also signalled for engineering construction. The sectors sub-index declined by 14.8 points to 38.4 in March, offsetting the gains in activity recorded in February. The decline in apartment building activity was more pronounced with the sub-index declining by 8.0 points in March to 34.2, the weakest reading in five months. Commercial construction remained particularly subdued with the sectors sub-index registering 29.3.This was a rise of 0.6 points from the previous month, indicating a broadly unchanged rate of contraction.

FEB

60 55

Decreasing

40 35 30 25 20

45.3

50 45 40 35

Houses

Apartments

Commercial

Engineering

MAR FEB JAN

30

Supported by:
*Prepared by Markit Economics

www.markiteconomics.com

 New orders (seasonally adjusted) contracted in March for the 34th

consecutive month.
Diffusion Index

60

Increasing

New Orders and Deliveries

Moreover, the rate of decline was steeper with the new orders

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

sub-index declining by 5.7 points to 36.0.

This result reflected sharper decreases in new orders across all of

50

New orders by sector

The fall in new orders in the house building sector was steeper

80 70 60 Diffusion Index 50 40 30 20 10
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Increasing Decreasing

in March with the sub-index down by 7.7 points in the month to 42.0. While this unwound some of the improvement seen in the previous month, it was the second strongest level for the housing new orders sub-index in 2 1/2 years. In apartment construction, the new orders sub-index fell by 7.5 points to 31.7. However, this followed a solid rise in February, continuing the volatile trend of recent months. For the commercial construction sector, new orders contracted markedly with the sub-index declining by 10.2 points to 29.6. A scaling back in public sector construction activity and overall weakness in approvals remain significant drags on activity. In the engineering construction sector, the new orders sub-index declined by 1.2 points to 36.5, indicating a slightly steeper rate of contraction in the forward work pipeline.

Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

the major industry sub-sectors with a steeper pace of contraction particularly evident for businesses engaged in commercial construction work. With aggregate demand remaining subdued, deliveries of inputs from suppliers continued to contract, and at a more pronounced rate. The supplier delivery index declined by 1.9 points in March to 44.5.

30

20

New Orders

Deliveries

Decreasing

40

CONTACT
Julie Toth Chief Economist Ai Group Tel 03 9867 0124 Harley Dale HIA Chief Economist Tel 02 6345 1329 Markit Economics www.markiteconomics.com
Decreasing

Houses

Apartments

Commercial

Engineering

Employment and Wages

Employment contracted at a steeper rate following the slower pace

80 70 60 50 40 30 20
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

of decline in February. 9.2 points from the previous month. Where employment levels fell, reports indicate that this was in line with reduced levels of incoming work. Following a solid increase in February, the wages sub-index declined by 9.8 points in March to 50.5, indicating a stabilisation of wages in the month.
Diffusion Index

The employment sub-index registered 39.2 in March, a decline of

Increasing

Employment

Average Wages

Input costs and selling prices

Input price inflation moderated in March. The input costs

100 90
Increasing

30 20
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

Input Prices

Average Selling prices

AUSTRALIAN PCI*
Activity Houses Apartments Commercial Engineering New Orders Employment Deliveries Input Prices Selling Prices Wages Capacity(%) March 2013 February 2013 Monthly Change Direction Rate of Change Trend ** (Months) 34 35 1 35 33 1 34 34 32 91 29 48 na Australian PCI 39.0 39.0 47.0 34.2 29.3 38.4 36.0 39.2 44.5 65.4 31.6 50.5 63.7 45.6 46.6 51.5 42.2 28.7 53.2 41.7 48.4 46.4 72.1 39.6 60.3 66.6 -6.6 Contracting -7.6 Contracting -4.5 +0.6 -14.8 Contracting Contracting Contracting -8.0 Contracting Faster Faster Faster Slower From expansion Faster Faster Faster Slower Faster Slower na

From expansion

-5.7 Contracting -9.2 Contracting -1.9 Contracting -6.7 Expanding -8.0 Contracting -9.8 Expanding Lower

-2.9% points

*Results are based on a sample of approximately 150 companies. New monthly seasonal adjustment factors were applied in April 2012. ** Number of months moving in current direction

Supported by:
www.markiteconomics.com

Decreasing

sub-index registered 65.4, a decrease of 6.7 points from the previous month. Selling prices declined for the 29th consecutive month, highlighting the strong competition for available work that persists across the industry. Moreover, selling prices were reduced at a sharper rate in the month with the sub-index falling by 8.0 points to 31.6.

80 Diffusion Index 70 60 50 40

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
AIG12816