Australian construction still slowing

By Richard High07 May 2009

Australia's construction industry continued to decline in April, although the rate of contraction eased for a second consecutive month, according to the latest Australian Industry Group - Housing Industry Association Australian Performance of Construction Index (Australian PCI).

The Australian PCI stood at 36.5 in April, up by 6.2 points, but below the key 50-point level that separates expansion from contraction.

Commenting on the results Australian Industry Group (Ai Group) associate director, economics and research, Tony Pensabene, said, "Ongoing weak demand conditions drove a further decline in construction activity in April, although a positive development was the further easing in the pace of the industry's contraction.

"This was mainly due to slower rates of decline in the engineering and commercial construction sectors. Both sectors registered their least marked falls since November 2008.

"There's some hope that the downturn in the housing sector may be bottoming out, with new orders declining at a less rapid rate, and the fall in activity considerably less pronounced than the situation in late 2008. This would appear to reflect the positive flow through impact of lower interest rates and the First Home Owner Grant, and provides signs of firmer housing activity in ensuing months," said Mr Pensabene.

HIA chief economist, Harley Dale, added that, "It is encouraging to see signs that a bottom may be near for the residential sector. This situation is almost certainly attributable to the considerable policy stimulus we have seen emerge over the past nine months.

"Policies targeted towards lifting new home building activity work - and they work quickly - as we have seen with the boost to the First Home Owner Grant. There is a requirement to provide further stimulus to new residential construction as this will provide positive outcomes for construction, employment, and the demand for manufactured product," said Mr Dale.

Australian PCI key findings for April:

■ The Australian PCI registered 36.5 in April. This was up by 6.2 points on the previous month, although it remained below the 50-point level that separates expansion from contraction.

■ The continued weakness in industry conditions was linked by most companies to the deteriorating economy and shortages of working capital, which resulted in clients delaying tenders, and in some cases, cancelling planned project developments.

■ While the fall in activity levels continued on a broad industry front, the engineering and commercial construction sectors registered a greater degree of resilience, with the pace of decline in both sectors at the least marked level since November 2008. In contrast, house building activity fell at a slightly higher rate during April (although the decline was considerably less marked than the low point of November 2008). The rate of decline in apartment building work was virtually unchanged.

■ On an overall industry basis, the continued fall in activity was reflected in further reductions in new orders, employment and supplier deliveries, although at lower rates than the previous month.

NOTE: The Australian PCI is a measure of the rise or fall in the activity in the Australian construction sector. It is not a measure of the level of construction activity.

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