Australian construction activity falls again, but rate slows

By Richard High05 September 2008

Australia's construction industry continued to decline in August, although the rate of contraction moderated for a third consecutive month, according to the latest report by the Australian Industry Group (Ai Group).

It's Housing Industry Association Performance of Construction Index (Australian PCI) registered just 43.1 in August, well below the key 50.0 level separating expansion from contraction.

Commenting on the latest results, Australian Industry Group (Ai Group) associate director economics and research, Tony Pensabene, said that demand for construction projects was continuing to be hit by on-going tight credit availability, as well as the impact of weak investor and consumer confidence.

"Nevertheless, we are seeing early signs that the industry has passed a low point in the current cycle with the rate of decline in activity moderating for a third straight month, with notable support in August coming from a lift in commercial construction," Mr Pensabene said.

"Also, despite the fall in engineering construction in the latest survey, this appears to be partly due to adjustments to work loads between project completion and the commencement of new work, with the expanding pipeline of projects in the sector pointing to higher activity in coming months," added Mr Pensabene.

Housing Industry Association chief economist, Harley Dale, said, "Following the further weakening in approvals in July, this latest update of the Australian PCI confirms that the residential building sector has remained unequivocally weak through the second month of the financial year.

"It strongly reinforces the necessity for a further rate cut before the end of the year to arrest a slowing domestic economy and help attract much needed investment in new residential construction," added Mr Dale said.

Australian PCI key findings for August:

  • The Australian PCI registered 43.1, remaining below the key 50.0 level for the sixth consecutive month.
  • The decline reflected the impact of weaker house building activity, and a further fall in the apartment sector (albeit at a slower rate) and a reduction in work on engineering construction projects. This outweighed an improvement in commercial activity, which expanded for the first time in the past six months.
  • Construction firms overwhelmingly linked the continued reduction in total construction activity to subdued market demand and subsequent declines of new order volumes.
  • There were also reports that economic uncertainty and tight credit conditions had led to further delays in project commencements.
  • On an aggregate industry basis, both activity and new orders posted on-going declines during August, resulting in firms reducing their workforces, although at a less marked rate than in the previous month.

The Australian Industry Group - Housing Industry Association 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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