PERFORMANCE OF CONSTRUCTION INDEX

DECEMBER 2012
DEC
60 55 50

CONSTRUCTION DOWNTURN EASES FURTHER IN DECEMBER

KEY FINDINGS
While there are some encouraging signs, the national construction industry continued to exhibit substantial weakness in December 2012. The overall rate of contraction eased for a third consecutive month in response to slower declines in activity and new orders. The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI ) increased by 1.8 points in December to 38.8. The index has now remained below the critical 50 points level (that separates expansion from contraction) for 31 consecutive months. By sector, commercial construction activity contracted at its slowest pace in just over two years, while the rate of decline in engineering construction again eased during the month. In contrast, house building activity declined at its steepest rate in three months amid weaker new orders. Apartment building activity also moved further into negative territory. Businesses reporting declines in activity mainly attributed this to tight credit conditions, strong competition for existing work and uncertainty about the economic outlook. A number of reports from house builders indicated that the weakness in demand was marked by a reduction in home buyer enquiries and a lack of commitment from potential purchasers.

AUSTRALIAN PCI

65 60 55
Diffusion Index

AUST
Increasing

38.8

45 40 35

50 45 40 35 30
Decreasing

NOV MAR FEB

30

UK CONSTRUCTION INDEX*

25
Dec 10 Jan 11 Feb 11 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

NOV 49.3

60 55 50 45 40 35

Australian PCI

3 month moving average

UK

CONSTRUCTION ACTIVITY AND CAPACITY

GERMANY CONSTRUCTION INDEX*

In seasonally adjusted terms, the activity sub-index registered 39.6 in December. This was 3.8 points above the level in the previous month, indicating a further easing in the rate of contraction in total industry activity. This result reflected the influence of slower rates of decline in commercial and engineering construction. Coinciding with these trends, the rate of capacity utilisation rose from of 65.6% in November to 67.3% in December.

60 55 50
Diffusion Index

80
Capacity Utilisation % (unadjusted)

OCT MAR FEB

30

75
Capacity Utilisation Activity

45 40 35 30 25 20

NOV

60 55

70

48.4

GERMANY
Dec 10 Jan 11 Feb 11 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

65

50 45 40 35

60

ACTIVITY BY SECTOR

75 70 65 60
Diffusion Index
Increasing

OCT MAR FEB

30

IRELAND CONSTRUCTION INDEX*

House building conditions weakened. The sectors activity sub-index fell by 6.1 points to 34.7 to signal a sharper rate of contraction in December. This reflected a steeper decline in new orders which is of concern for the sectors outlook. Apartment building activity was more subdued with the sub-index declining by 2.4 points in December to 40.1. Commercial construction contracted at its slowest pace since October 2010. The sectors sub-index increased by a solid 8.7 points in December to 46.2. The rate of decline in engineering construction moderated in the month with the sectors sub-index increasing by 2.2 points to 38.5.

55 50 45 35 30 25 20 15
Dec 10 Jan 11 Feb 11 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

NOV

60 55 50

IRELAND

Decreasing

40

42.6

45 40 35

Houses

Apartments

Commercial

Engineering

MAR FEB OCT

30

Supported by:
*Prepared by Markit Economics

www.markiteconomics.com

NEW ORDERS

70
Increasing

New orders (seasonally adjusted) declined in December for the 31st consecutive month. However, the rate of decline was distinctly slower with the new orders index increasing by 8.3 points to 42.6. Although new orders in the house building sector weakened, all other broad industry sectors registered less pronounced rates of decline. This suggests that the aggregate level of activity in the industry is likely to improve in coming months.

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

60
Diffusion Index

50

30

20
Dec 10 Jan 11 Feb 11 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

NEW ORDERS BY SECTOR

New orders in the house building sector declined at a steeper rate with the sub-index falling by 4.0 points in December to 33.9. In commercial construction, the new orders sub-index rose by 13.5 points to 50.3. This is the first reading pointing to an expansion in new orders within the sector since mid-2010. For the engineering construction sector, the contraction in new orders moderated with the sub-index rising by 14.0 points to 44.8. Reflecting the lumpy nature of investment demand in the sector, this follows a decline of similar magnitude in the previous month. In the apartment sector, the new orders sub-index rose by 10.1 points to 43.1, the slowest rate of contraction in 22 months.

75 65 60
Diffusion Index
Increasing Decreasing

70

55 50 45 40 35 30 25 20 15
Dec 10 Jan 11 Feb 11 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

Decreasing

40

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

Houses

Apartments

Commercial

Engineering

EMPLOYMENT AND WAGES

80 75
Increasing

40 35 30 25

Employment

Decreasing

Employment contracted at a steeper rate following the slower pace of decline in November. The employment sub-index registered 34.0 in December, a fall of 7.1 points from the previous month. Reductions in employment within the house building sector weighed heavily on this result reflecting weaker housing activity and efforts to reduce costs. Growth in wages continued in December, and at a stronger rate, with the wages sub-index rising by 4.3 points to 58.6.

70 65
Diffusion Index
Average Wages

60 55 50 45

DELIVERIES, INPUT COSTS AND SELLING PRICES

95 90 85 75 70 65 60 55 50 45 40 35 30
Dec 10 Jan 11 Feb 11 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 Decreasing Increasing

Deliveries of inputs from suppliers continued to decline in December. The supplier delivery index registered 37.5. This was 0.3 points below the previous months reading to signal a broadly unchanged rate of contraction in December. Input price inflation increased in December. The input costs sub-index registered 68.8, a rise of 3.7 points from the previous month. Amid strong competition for available work, selling prices again contracted. However, the rate of decline eased with the sub-index rising by 4.2 points to 36.0 in the month.

80

The Australian Industry Group, 2012 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, nancial or investment advice and does not constitute nancial 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 nancial 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 this publication.
*Prepared by Markit Economics
AIG12485

AUSTRALIAN PCI*
December 2012 AUSTRALIAN PCI ACTIVITY - HOUSES - APARTMENTS - COMMERCIAL - ENGINEERING NEW ORDERS EMPLOYMENT DELIVERIES INPUT PRICES SELLING PRICES WAGES CAPACITY(%) 38.8 39.6 34.7 40.1 46.2 38.5 42.6 34.0 37.5 68.8 36.0 58.6 67.3 November 2012 37.0 35.8 40.8 42.5 37.5 36.3 34.3 41.1 37.8 65.1 31.8 54.3 65.6 Monthly Change +1.8 +3.8 -6.1 -2.4 +8.7 +2.2 +8.3 -7.1 -0.3 +3.7 +4.2 +4.3 +1.7 % points Direction Contracting Contracting Contracting Contracting Contracting Contracting Contracting Contracting Contracting Expanding Contracting Expanding Higher Rate of Change Slower Slower Faster Faster Slower Slower Slower Faster Faster Faster Slower Faster na Trend ** (Months) 31 32 31 32 30 12 31 31 29 88 26 45 na

*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

Dec 10 Jan 11 Feb 11 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

Deliveries

Input Prices

Average Selling prices

Supported by:
www.markiteconomics.com