An unfinished house
construction site
building
blue sky
clouds

Clouds hang over house building. Photo: Rob Homer

THE national construction industry is still in a slump, with activity contracting at the sharpest rate since last September due to a fall in new orders.

The seasonally adjusted Australian Performance of Construction Index (Australian PCI) was 32.2 in August - down slightly from 32.6 in July. Readings below 50 show a weakening in activity while the distance from 50 indicates the strength of the decline.

The Australian PCI, published by Australian Industry Group and the Housing Industry Association, has now been negative for 27 consecutive months.

In August, survey respondents cited subdued conditions, a shortage of new tenders, project delays and difficulty in securing funding as affecting growth.

The survey's other key findings included: the new orders sub-index fell 5.8 points to 28.8, employment continued to contract, and the selling price index was 38.5 in August.

Apartment building was the main area of weakness - down 10.8 points to 22.1 in August - offsetting gains from the previous month. Engineering construction, despite doing better than the other sectors, was still in decline at 35.7. Respondents said a slowing in resource sector demand and project delays was affecting activity.

AIG group director of public policy Peter Burn said the continuing severe slump in residential and commercial construction was a drag on the overall economy.

''Even though interest rates have fallen recently, the near-term outlook for the construction sector deteriorated with a further fall in new orders,'' he said.

HIA chief economist Harley Dale said against a backdrop of five weak quarters, it was worrying that there was no sign of a turnaround, throwing in doubt any improvement by December.

The construction activity sub-index registered 31.2, up fractionally from 31.1 in July, but the rate of capacity utilisation declined from 65.3 per cent in July to 63 per cent - the weakest level since readings on capacity began in early 2008.

House building continued to contract and was still weak but, more positively, the sector's sub-index rose by 3.5 points to 31.5, signalling a slower pace of decline.

However, new orders in the house building sector continued to fall. The sub-index fell by 0.9 points to 29.4, indicating a slightly steeper rate of contraction in the month.

Commercial construction remained subdued, although the sector's sub-index rose by a solid 7.9 points to 34.0. ''Despite the slower rate of contraction, a scaling back in public sector construction activity and overall weakness in approvals remain significant drags on activity,'' Mr Burn said.