Apartments hardest hit in building slump

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.

Clouds hang over house building.
Clouds hang over house building. Photo: Rob Homer

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.