Tough conditions persist for Australian construction industry

Tough conditions across Australia's construction industry kept the sector in negative territory in August according to the latest seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI.)

The latest Australian PCI shows the sector remained broadly unchanged in August down -0.1 points to 43.2 (readings below 50 indicate a contraction in activity).

Poor market demand, a reduced work flow from school building projects together with intense competition to secure existing contracts, impacted negatively across construction, said the Australian Industry Group/Housing Industry Association study, resulting in a drop in new orders, deliveries and selling prices.

All major sectors remained in the red in August, with house building falling to 38.4, the lowest reading in 16 months.

Commenting on the latest figures, Australian Industry Group director public policy, Dr Peter Burn, said, "The disappointing results for the Australian PCI in August suggest that the construction sector is yet to bounce back from a distinct decline in performance since May.

"The decline of activity and new orders in the house building sub-sector is of particular concern. While weakness in activity persisted in other sub-sectors, the pace of declines eased in August.

"The industry remains hampered by the failure of private demand to take up the slack left by the dwindling number of new public sector projects and the withdrawal of additional support for first home buyers. In the commercial construction sector in particular, an inability to secure funding for projects is a key element in the shortfall in private demand," added Dr Burn.

Housing Industry Association chief economist, Harley Dale, said, "As the positive impact from fiscal and monetary policy stimulus has unwound, it has become increasingly apparent that a first stage new home building recovery will not morph into a more sustainable housing up-cycle.

"This situation is particularly evidenced by the further deterioration in August of the house building sub index of the Australian PCI.

"Rising interest rates earlier in the year played a role in dampening demand, while the on-going lack of available finance for development is showing no material sign of improvement and is a major obstacle to a sustained recovery. If you add within this restricting environment the perennial supply side issues related to, for example, lack of affordable land and high taxation and regulation on new housing, it is difficult to envisage a short term turnaround," said Mr Dale.

Australian PCI key findings for August:

• The latest seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) remained broadly unchanged in August down -0.1 points to 43.2 (readings below 50 indicate a contraction in activity).
• Tough industry conditions, including poor market demand, intense competition to secure existing projects and reduced work from school building projects all impacted negatively on the industry in August.
• All major sectors remained in the red; house building recorded its lowest reading in 16 months.
• Engineering construction registered 40.3, apartment building 47.6 and commercial construction 42.9.
• The new orders sub-index was 43.5.
• Deliveries from suppliers dropped 4.7 points.
• The employment sub-index declined at a slower rate in August.