Australian construction declines again

By Richard High06 February 2009

Australia's construction industry registered a further decline in January, as the global economic and financial crisis continued to adversely affect market demand and confidence, according to the latest Australian Industry Group - Housing Industry Association (HIA) Australian Performance of Construction Index (Australian PCI).

While the Australian PCI registered 34.1 in January, this was up 3.2 points on the previous month.

Ommenting on the results, Tony Pensabene, Australian Industry Group (Ai Group) associate director, economics and research, said: "January was another poor month for the construction industry, with the relentless pressures of tight credit conditions and deteriorating economic sentiment driving a further decline in activity.

"We are continuing to see weakness on a broad industry front, with intense competition for contracts with many firms reporting clients are either scaling back or deferring planned project developments.

However, it was not all bad news. Total industry activity, new orders and employment all contracted at slightly slower rates than in December. It was notable that the rate of decline in house building activity eased for a second straight month, suggesting that lower interest rates and increases to the first homeowners grant are starting to benefit the sector. Industry will be hopeful that this week's announced stimulus package will contribute positively to activity and employment in the sector going forward," added Mr Pensabene.

HIA chief economist, Harley Dale, said: "Clearly the new home building sector has entered 2009 with aggregate activity still heading in the wrong direction. The prospects of a turnaround have, however, improved this week.

"We have seen a further interest rate cut and a substantial fiscal housing package aimed at stimulating residential construction sooner rather than later. This combination, together with the short term boost available to first home buyers, creates a solid base for a recovery to emerge as we move through the year," Mr Dale said.

Australian PCI key findings for January:

  • The seasonally adjusted Australian Industry Group/Housing Industry Association Performance of Construction Index (Australian PCI) stood at 34.1 in January. Although this was 3.2 points up on the survey low of December 2008 (to signal a slight easing in the rate of decline), it nevertheless remained firmly below the 50 points no-change level, and marked the eleventh consecutive month of industry contraction.
  • Construction companies reported that the deteriorating state of the economy and the on-going lack of credit availability had resulted in clients delaying tenders and further cutting back on new project work.
  • Reductions in activity continued on a broad industry front, although the worst conditions were evident in the apartment sector where the pace of contraction increased. The fall in house building activity moderated for a second straight month (suggesting an early flow-on effect from lower interest rates and increases to the first-home owner's grant), while the pace of decline in engineering and commercial construction eased slightly.
  • For the industry as a whole, activity and new orders registered further marked declines, albeit at rates slower than the previous month. This resulted in further cut backs in employment and supplier deliveries.

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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