Building activity falls for 24th straight month, study finds

08/06/2012 - Australian building activity has contracted for its 24th consecutive month, based on weak commercial activity and new orders, a private study has found.

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The Australian Industry Group-Housing Industry Association's performance of construction index (PCI) fell 0.2 points to 34.7 in May.

A reading below 50 indicates a contraction in activity.

Commercial construction was the weakest sub-sector, with its sharpest fall in three years, down 9.8 points to 25.4.

Both house and apartment building remained weak, though the apartments were slightly improved.

The index of house building activity fell 5.1 points to 28.2 - which was the steepest index decline since September 2011.

Apartment building continued to decline, but at a slower rate as the index of activity in that sector rose 3.8 points to 26.7.

New orders continued to be in contraction mode, rising only slightly to 33.7 for May.

Engineering was the best performing sub-sector, but the rise of 0.4 points to 41.3 still left it in a downturn.

Australian Industry Group (Ai Group) chief economist Julie Toth said that non-mining-related construction remained extremely weak.

"The index continues to reflect the cyclical downturn in residential housing activity as well as the downturn in non-residential building and construction, outside the mining sector," she said.

"While the two consecutive cash rate cuts from the RBA (Reserve Bank of Australia), in May and June, are very welcome and will help to improve sentiment among home builders and investors, it will take some time for this benefit to flow through to actual construction activity levels.

"In the meantime, the forward indicators such as building and credit application approvals all point to a further period of extended weakness in construction activity levels from here."

Housing Industry Association (HIA) senior economist Andrew Harvey said that previous cash rate cuts had provided some relief, but more measures were needed.

"Interest rates are now moving in the right direction, but with consumer and business confidence at low levels it will likely require fiscal stimulus to get new home building, not to mention much of the non-resource economy, out of the current weak position," he said.

Source: AAP

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