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Construction continues to slip into broad-based industry decline

16 March, 2009

The national construction industry continued to contract in February at a more rapid rate than the previous month as weak market demand and confidence led to further cutbacks in new project work.

The Australian Industry Group - Housing Industry Association Australian Performance of Construction Index (Australian PCI®) registered 29.5 in February, down by 4.6 points and remaining below the 50.0 point level separating expansion from contraction for the twelfth consecutive month.

Australian Industry Group (Ai Group) Associate Director, Economics and Research, Tony Pensabene, said: "There was no let up in February for struggling construction firms as the relentless pressures of tight credit conditions and low market confidence continued to hit demand for building projects.

"This was evident in the ongoing deterioration in activity across all major construction sectors, as firms faced intensifying competition for contracts and a further narrowing of business opportunities. There were also further reports of project delays and deferrals, particularly in the commercial sector which posted the worst activity level of all sectors.

"Nevertheless, lower interest rates and increases to the first home owners grant appear to have contributed to an easing in the rate of new order contraction in the house building sector for a third straight month." Pensabene said.

HIA Chief Economist, Harley Dale, said: "Despite tenative signs that the drop in demand for housing is easing, there is clearly a need for an increase in trade-up buyer and investor activity before an aggregate new home building recovery will emerge.

"The urgent implementation of the Federal Government's funding of public and community housing projects, with the multiplying effect this stimulus will have in unlocking private sector projects, can prove the catalyst for a broad-based recovery in residential construction," Dale said.

Australian PCI® Key Findings for February:

- The seasonally adjusted Australian Industry Group/ Housing Industry Association Performance of Construction Index (Australian PCI®) stood at 29.5 in February to remain below the 50-point level separating expansion from contraction, for a twelfth consecutive month.
- The downturn continued on a broad industry front, although the worst conditions were experienced in the apartment and commercial construction sectors, with commercial activity in February falling to a new survey low. While house building activity continued to contract, it would appear that lower interest rates and increases to the first home owners grant underpinned a third straight month of abatement in the rate of decline in new orders, to provide tentative signs of firmer housing activity in the months ahead.
- The principal issues facing the industry remained a lack of funding availability, delays in planned building works, and reluctance by clients to commit to new projects. Firms also noted that competition to secure new contracts had intensified, resulting in a high level of unsuccessful tenders and shrinking order books.
- For the industry as a whole, levels of activity and new orders registered further marked reductions in February (despite a slight easing in the rate of decline in new business). This resulted in further cutbacks in employment and deliveries from suppliers.

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