Australian construction activity continues to fall

Activity in Australia's construction industry has declined for a fourth consecutive month in June 2008, although the rate of decline was less marked than in the previous month, according to the latest Australian Industry Group - Housing Industry Association Performance of Construction Index (Australian PCI).

June's PCI registered 40.3, well below the critical 50.0 points level separating expansion from contraction.

Commenting on the findings, Australian Industry Group (Ai Group) associate director, economics and research, Tony Pensabene said: "The findings confirm the intense and on-going pressures on the major construction sectors from higher interest rates and tighter liquidity.

"We are continuing to see weakness on a broad industry front, with falling demand, weaker economic conditions, and increased competition for work, cited as key factors by firms for the continued fall-off in activity.

Mr Pensabene added that, "despite a moderation in the contraction of new business volumes in June, the outlook remains subdued, with further weakness in activity likely to persist over coming months."

Housing Industry Association (HIA) chief economist, Harley Dale, said: "The 2008/09 financial year will be a flat one at best for new residential construction and this situation will place further pressure on already very tight rental markets, among other negative impacts.

"Renewed cyclical weakness is embedded in the housing sector in the short term. That unfortunate situation is already in play as the Australian PCI results over the first half of 2008 clearly indicate.

"Structural constraints such as high fees, taxes, charges, and planning delays can, however, be acted upon by governments and it is vital such action is embarked upon now," added Mr Dale.

Australian PCI key findings for June:

• The Australian PCI registered 40.3 in June, with construction companies linking the reduction in activity to continued weakness in market demand and a further contraction in new business volumes, citing the negative influence of higher interest rates, and weaker consumer and investor confidence.
• Firms also commented that market uncertainty and difficulties in raising funds had led to delays in project commencements.
• For the industry as a whole, both activity and new orders declined further in June (albeit at slightly lesser rates than in May), with the subsequent lower workloads resulting in a reduction in employment for a third consecutive month.
• The rate of increase in input costs remained at an elevated level in June, as firms reported increased fuel and steel prices.