Australian construction continues to fall

By Richard High14 April 2009

Australia's construction industry continued its decline in March, according to the latest Australian Industry Group - Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI).).

While the index actually rose by +0.9 points to 30.4 in March it remained well below the 50 points level separating expansion from contraction, reflecting widespread reports of weak market demand and a lack of new project work, according to Australian Industry Group (Ai Group) associate director, economics and research, Tony Pensabene.

"The March Australian PCI results show more evidence of a struggling construction industry as low market demand and tight credit conditions lead to on-going falls in activity," said Mr Pensabene.

"However, there is an easing in the pace of the industry's contraction, reflecting slower rates of decline in the house building, apartments and commercial construction sectors. While well away from a meaningful recovery, a notable development has been the considerable easing in the rate of contraction in house building activity since late 2008 on the back of lower interest rates and the increase to the first home owners grant.

"In addition, the sizeable moderation in the level of contraction in apartment building activity in March, follows the recent upturn in approvals for the sector, and may provide an early sign of firmer investor demand, although it is a volatile segment of the building market," added Mr Pensabene.

HIA chief economist, Harley Dale, added that an "easing in the rate of contraction in activity is encouraging, particularly given that the industry has endured 14 consecutive months of weakness."

"Home building conditions in aggregate remain very weak, in no small part due to the credit crunch. With current initiatives clearly having a positive impact on parts of the market, there is a requirement to provide further stimulus to new residential construction to support activity, employment, and the demand for manufactured products," Mr Dale said.

Australian PCI key findings for March:

  • The national construction industry continued to decline in March 2009, although the rate of contraction was slightly less marked than the previous month.
  • The Australian PCI stood at 30.4 in March, remaining firmly below the 50 points no-change level signalling deteriorating conditions in the industry for a thirteenth consecutive month.
  • This continued fall in construction activity reflected widespread reports of weak market demand and a lack of new project work. Firms also strongly linked the downturn to shortages of working capital at client companies which was seen as a principal cause of further project delays and the cancellation of orders.
  • The results for March pointed to a continuation of falls in activity on a broad industry front, although rates of decline moderated in the house building, apartments and commercial construction sectors. Of significance, the activity sub-index readings for both house building and apartments were up by 10.9 and 9.2 percentage points respectively on the low levels registered by both sectors in November 2008.
  • For the industry as a whole, levels of activity and new orders registered further reductions in March, (with an increase in the rate of decline in new business). This resulted in further cut backs in employment and deliveries from suppliers.

The Australian Industry Group - Housing Industry Association Performance of Construction Index (Australian PCI) is a seasonally adjusted national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights.

An Australian PCI reading above 50 points indicates that 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 for the third month of each quarter are based on an expanded sample (in excess of 500 companies). Results for the other months are based on responses from over 120 companies.

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