Australia’s construction activity expands

By Richard High07 March 2008

Australia’s construction industry continued to expand in February, despite a slow down in the rate of growth.

The latest Australian Industry Group (AIG) – Housing Industry Association (HIA) Performance of Construction Index (Australian PCI) registered 53.9 in February, -4.4 points lower than in January. However, this remained above the key 50.0 points level separating expansion from contraction).

Commenting on the latest figures, AIG associate director, economics and research, Tony Pensabene, said they highlighted the “mixed and fragile state” of the construction industry.

“Although we are seeing a continuation of growth in the total building market, solid conditions in commercial and engineering construction are masking declines in both house and apartment building,” said Mr Pensabene.

“It is clear from the renewed weakness in the residential sector that higher interest rates and the further erosion of housing affordability are taking their toll on activity, and preventing the emergence of any sustained recovery,” he added.

HIA chief economist, Harley Dale said, “The new home building industry is clearly struggling. Recent Federal initiatives to boost the supply of new dwellings are to be welcomed.

“A continued focus on alleviating the supply side constraints to new residential construction will be vital in what looks set to be a challenging environment for some time to come,” Mr Dale said.

Australian PCI key findings for February:

• The Australian PCI fell by -4.4 points in February, due largely to renewed weakness in house and apartment building.

• Both engineering and commercial construction maintained growth in February, with the commercial sector posting its highest rate of increase in the past five months.

• This contrasted with a fall in house building activity (the first since August 2007), and a marked reduction in the level of apartment work, which more than offset the upturn of the previous month.

• Companies reporting weaker activity in February (predominantly house and apartment builders) linked this to higher interest rates, and lower levels of incoming business.

• For the industry as a whole, growth in activity and new orders moderated, resulting in a slower rate of increase in both employment and deliveries.

The Australian Industry Group (AIG) – Housing Industry Association (HIA) Performance of Construction Index (Australian PCI) is a seasonally adjusted national composite index based on the diffusion of indices for sales, orders/new business, deliveries and employment with varying weights across the residential, engineering, non-residential (commercial) and apartment sectors.

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. Australian PCI results are based on responses from approximately 120 companies.

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