Aust building industry slumps

Australia's building industry has slumped back into contraction following a fall in new orders.

The Australian Industry Group's Performance of Construction index dropped 2.6 points to 48.2 in January, indicating the building sector is contracting.

A reading below 50 points shows the sector is contracting; above indicates expansion.

It dints hope that the industry was on a rebound after strong growth in house building propelled the broader construction sector into its third consecutive month of expansion in December following several years of decline.

Driving the fall was a decline in new orders (down 6.6 points to 47.7), a steeper fall in employment (45.1) and a continued reduction in deliveries from suppliers (49.0), Ai Group says.

Ai Group public policy director Peter Burn said the reading casts doubt over possibilities of a recovery in the construction sector.

'Its performance in the next few months will be critical in determining whether there is a consolidation of the gains of late last year or a resumption of the weakness that has characterised the residential and commercial construction slump in the past couple of years,' he said.

House building was the strongest sub-sector, at 57.5, but its rate of expansion had moderated in line with slower growth in new orders in January.

Engineering construction recovered from the drop reported in December, while apartment building contracted sharply and commercial construction slipped from the slight expansion recorded in December.

Housing Industry Association senior economist Shane Garrett said new dwelling construction was needed to prop up the economy as mining slows.

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Aust building industry slumps