Construction activity crumbles as housing downturn takes toll

The construction sector continued to be in distress in November, thanks to the weak demand in the housing sector.

Australian Industry Group (Ai Group)’s Performance of Construction Index (PCI) dropped to 44.5 points, the weakest reading since 2015. The PCI gauges the activity across the construction sector from one month to another. A below 50 reading suggests that the sector is worsening.

For the third consecutive month, the construction sector recorded weak growth across several indicators including activity level, new orders, and employment.

"A further lift in infrastructure activity was not able to offset steeper falls in residential construction sub-sectors in November," Ai Group head of policy Peter Burns told Business Insider Australia.

New orders, which serve as a lead indicator of future activity levels, declined due to the weak demand for houses, apartments, and commercial work.

Apartment-building and house-building activities saw the steepest rate of decline in six years, with Sydney and Melbourne leading the downturn. Commercial work moderated for the fifth consecutive month. Only engineering construction was able to register growth in activity.

Margin pressures make the situation worse for construction -sector players, as input costs grew at a faster pace as prices declined.

"Cost pressures remain high on (a) wide industry basis due to robust demand for construction materials, elevated energy input costs and supplier price hikes related to strength in commodity prices. Selling prices continued to contract in November, albeit at a slower rate," Burns said.