Construction sector suffers further downturn in new year

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Declines in construction activity and new orders in January are contributing to a further decline in the performance of Australia's construction sector, latest industry figures reveals.

Construction sector suffers further downturn in new year
Australian's construction sector faces a further decline in January

The most recent Australian Performance of Construction Index (Australian PCI), compiled by the Australian Industry Group/Housing Industry Association, shows a drop of 2.6 points from December's figure to 36.2 in January. (readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline.)

This comes despite welcome news of the downturn easing slightly late last year.

All major sub-sectors continued in the red with house building being the worst performer at 36.1.

The sector-wide new orders sub-index, which fell to 37.0, has now been in decline for 32 consecutive months. New orders in the residential sub-sectors all fell noticeably in January.

Australian Industry Group's Director of Public Policy Peter Burn says the slump looks set to continue.

"The impacts are being felt not only by the businesses and employees directly involved in the industry but also across the broader economy as industries in both the services and manufacturing sectors feel the pinch from the prolonged sluggishness in house, apartment and construction building," he says.

Burns says slowing activity in the engineering construction sector is adding pressure on the broader construction industry, with reduced interest rates last year yet to take effect.

"The reductions in interest rates between May and December last year are yet to deliver a pick-up in activity- particularly in the commercial and residential sectors where the cuts were expected to have the greatest effect," he says.

Housing Industry Association Chief Economist Harley Dale says the Australian PCI for January is a very disappointing update on the sector.

"A contraction at a faster rate for the headline index and a number of sub-indices at the beginning of 2013 is not the new entry required to suggest we are on the cusp of a recovery in non-resource construction investment," he says.

"In terms of residential construction, the indications from the Australian PCI measures are that a sustainable recovery in either detached houses or apartments is some distance away."

Key findings of the report for January are as follows:

  • The latest Australian PCI lost 2.6 points to record 36.2 in January (readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline.)
  • The Australian PCI has now been contracting for 32 consecutive months. Many businesses linked the ongoing decline in activity to poor market demand including limited opportunities for new work. Project delays also continue to bite.
  • The new orders sub-index was 37.0 points in January.
  • Across the sub-sectors: The house building sub-index was 1.4 points higher at 36.1, apartment building was 1.2 points weaker at 38.9, commercial construction dropped 6.1 points to 40.1 and engineering construction was up 0.2 points to 38.7
  • The input prices sub-index remained high at 63.5.
  • At 33.3 - it was another weak month for the sector's employment sub-index.

Click here to read the full report for January.

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