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The national construction industry decline begins to slow down

17 June, 2009

The national construction industry continued to decline in May, although the rate of contraction was the slowest in the past fourteen months.

The Australian Industry Group – Housing Industry Association Australian Performance of Construction Index (Australian PCI®) rose by 10.4 points to 46.9, but remained below the key 50-point level that separates expansion from contraction.

The Australian Industry Group (Ai Group) Associate Director, Economics and Research, Tony Pensabene, said: “Despite the continued subdued state of the construction industry, the latest data provides evidence that the industry is starting to recover some ground following the significant deterioration during 2008 and the first quarter of 2009.

“This was particularly noticeable in the house building sector where the pace of decline in both activity and new orders eased markedly, with companies linking this to the positive impact of lower interest rates and the First Home Owners Grant Scheme. These developments are adding weight to the likelihood of firmer housing activity in coming months.

“There was also a better tone in other areas of the industry with work on apartment and commercial building projects exhibiting less marked rates of decline, while engineering construction moved back into positive territory, although the level of growth was marginal. Nevertheless, given the volatility of these sectors, it will be a few months yet before we can say that the industry is over the worst of the downturn,” Pensabene said.

HIA Chief Economist, Harley Dale, said: “The slowing in the rate of contraction, especially for detached house construction, is an encouraging sign that the sector may have bottomed in the first half of 2009.

“A range of indicators for early 2009 point to the prospect of a new home building recovery in the second half of 2009. The latest Australian PCI®, the first indicator released for May, adds momentum to this prospect. It is a long way back, and the residential activity components of the Australian PCI® have been below 50 for sixteen straight months. Nevetheless, housing starts are forecast to grow by 11 per cent in the second half of 2009,” Harley Dale said.

Australian PCI® Key Findings for May:

The Australian PCI® rose by 10.4 points in May, although it remained below the 50-point level which separates expansion from contraction, signalling on-going weakness in overall industry conditions.

Where falls in activity were recorded, this was mainly linked by firms to strong competition for available work, the postponement of projects and low investor confidence.

However, helping to moderate the rate of decline in the house building sector were reports of an improvement in customer enquiries and sales due to the impact of low interest rates and the First Home Owners Grant.

Across the sectors, the rate of decline moderated for work undertaken on commercial, house, and apartment building projects, while engineering construction activity posted its first increase in the past ten months, albeit at a marginal pace.

On an overall industry basis, continued falls in activity and new orders resulted in firms further reducing their workforces, although at a less marked rate than the previous month.

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