Construction activity dipped in December, causing a decline in employment and straining profit margins across the building industry.
The drop in work followed a similar contraction in new jobs and profit margins recorded in November, according to the Australian Industry Group and Housing Industry Association’s monthly Performance of Construction Index, released on Friday.
While apartment construction has been one of the strongest-performing industry sub-sectors, building levels fell sharply to the lowest recorded in 16 months, down 14.3 points.
Homebuilding activity fell for the first time since August 2013, down 5.5 points. New dwellings are still regarded as a bright spot for builders thanks to strong dwelling approval numbers. Engineering construction continued to be weak.
Ai Group chief economist Julie Toth said the construction industry strengthened around the middle of 2014, but lost momentum towards the end of the year. “Commercial construction has failed to pick up pace, reflecting an ongoing lack of demand for new commercial and industrial facilities.
“Engineering construction is now experiencing the well-documented downswing in mining-related projects, as well as a decline in public sector projects.”
Ai Group was concerned about the lack of new orders for commercial and engineering work. Labour market conditions continued to deteriorate in December. Businesses have pointed to reduced workloads and weak new order numbers as causing cuts to employment.
HIA economist Diwa Hopkins said the declines recorded across the industry were disappointing and had filtered through to employment. “Strong growth in new home building had been buoying not only Australia’s construction sector, but also the wider economy throughout 2014,” she said. “Nevertheless, we still expect activity in this sub-sector to remain elevated in 2015, even if lower than the record level experienced in the year just passed.”
Input costs for construction was still high in December while selling prices declined which has put more pressure on profit margins, reflecting fierce competition between builders to secure work.
While new orders for housing construction were weaker than mid-2014, a solid pipeline of work for new homebuilding was still predicted.
ABS figures that were released on Thursday showed that the number of dwellings approved throughout 2014 varied month to month, but over the course of the year, were above industry expectations.
While not all approved dwellings will be built, Master Builders Australia has predicted new housing starts will exceed 200,000 for the first time in the next financial year, creating an ongoing pipeline of work.