Australian construction industry continues to improve

The Australian construction industry expanded for a second consecutive month in February albeit at a slower rate compared to January, according to the latest Australian Industry Group/Housing Industry Association Performance of Construction Index.

An easing in demand and employment saw the seasonally adjusted Performance of Construction Index (Australian PCI) index slip 4.9 points to 52.8 in February, but it remained above the 50 point level indicating an expansion in activity.

Fewer new contracts, the completion of existing work and a contraction in the apartment sector accounted for the slower pace of growth. However, customer enquiries and buyer confidence remained resilient during the course of the month.

Australian Industry Group (Ai Group) director for public policy, Dr Peter Burn said, "The survey results further reinforce the improving trend that has been evident over much of the period since the low point of February last year. While activity contracted in the volatile apartment sector, the engineering, commercial and house building sectors all reported another month of growth.

"The house building sector, in particular, experienced solid conditions, in line with official data showing a continued increase in approvals for detached houses. The survey points to housing activity holding up over coming months with firms reporting a further improvement in their order books and the emerging signs of an increase in investor activity.

"The key concern is that higher interest rates and, in particular, the clear risk of further increases, will pull back growth in coming months," Dr Burn added.

Housing Industry Association senior economist, Ben Phillips, said, "The continued expansion of detached housing is further evidence of recovery in that sector. The sustainability of that recovery will be tested later in 2010 as social housing and first home buyer activity declines and interest rates increase."

He added the poor performance in the apartments sector is indicative of continued credit issues in the sector.

"A broad-based housing recovery will not be complete until the volatile units market consistently stays in expansionary territory," Mr Phillips said.