Engineering Work Continues to Buoy Australia’s Construction Sector

Australia's fastest growth in engineering work in over a decade has offset a decline in the apartment sector, maintaining construction industry growth for a ninth consecutive month.

Developed by the Australian Industry Group and the Housing Industry Association, the Performance of Construction index revealed the construction industry expanded in October, easing slightly by 1.5 points to 53.2.

A reading above 50 indicates expansion in activity, with the distance from 50 indicating the strength of the increase.

Engineering construction, led by non-mining work, was at its strongest level in a decade in October, while house building activity also rose.

[Related reading: Australia’s Construction Sector Continues Moderate Growth in September]"The positive run continued for the construction sector in October on the back of further growth in the house-building and engineering construction sub-sectors and despite flat commercial construction and another month of contraction in the apartment sub-sector,” Ai Group head of policy Peter Burn said.

Across the four construction sub-sectors, engineering construction was again the strongest performer, recording a 10-year high -- up 4.0 points to 60.9 --on the back of rising non-mining infrastructure work. House building also recorded continued growth (down 3.5 points to 53.1).

Commercial construction activity remained stable in October (down 0.2 points to 50.1), while apartment building stayed in negative territory, but at a slower rate (up 5.4 points to 46.8).

Construction activity (up 0.3 points to 52.9) and new orders (up 0.3 points to 53.6) continued to rise in October, together with ongoing expansion in deliveries from suppliers (down 6.6 points to 54.2) and employment (down 3.0 points to 52.4).

The input prices (up 2.5 points to 75.0) and wages (down 6.9 points to 59.9) sub-indexes remained elevated in October. The selling prices sub-index dropped 6.0 points to remain in expansion at 53.6, suggesting that rising costs are being passed on, but not broadly given strong market competition.

Australia's infrastructure pipeline is strong -- with 21 projects worth over $2 billion under procurement or construction along the east coast, including Brisbane's Cross River Rail, the inland rail, Western Sydney airport and the Sydney and Melbourne metros.

[Related reading: 7 Major Projects Add $12bn To Brisbane’s Economy]There may still be plenty of cranes visible on new apartment sites but there are now many less than was the case a year ago," Burn said.

HIA principal economist Tim Reardon said the outcomes for November 2017 paint a diverse picture of Australia's construction industry.

“This is consistent with the large differences in construction industry conditions across sectors, sub-sectors and regions. The house building has continued to cool modestly throughout the year.”

Reardon said this trend will continue into 2018.

“The easing in the pace of contraction in the apartment side of the market is welcome news in a market that has slowed over the year," he said.