Strong growth fails to lift construction out of doldrums

DESPITE nine months of successive expansion in house building and improvements in apartment construction, the national construction industry remained in negative territory in May.

The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) recorded 46.7 in the month - a lift of 0.8 points on April's reading (readings below 50 indicate a contraction in activity).

While house building was 54.4 and apartment building increased 7.0 points to 64.9, commercial construction contracted (albeit at a slower rate) at 49.7 and engineering construction fell further - registering 34.8. There were reductions in the rate of contraction in employment (up 3.8 to 47.1) and deliveries (up 3.1 to 47.0) however, wages (59.1) and input prices (66.1) remain high.

"The rebalancing of the construction sector is gathering pace with a further decline in engineering construction in May partially offset by healthy expansions in house and apartment building," said Australian Industry Group Director - Public Policy, Peter Burn.

"Encouragingly, new orders in these residential sub-sectors are also on the rise although the easing of residential building approvals in recent months may temper medium-term expectations.

"Commercial construction on the other hand is struggling to sustain momentum after some promising signs earlier in the year. The sector was still shy of growth in May and new orders for commercial construction work fell.

"Engineering construction continued its drop in the wake of the mining-investment boom leaving plenty of capacity for an expansion of other infrastructure activity."

Housing Industry Association Chief Economist, Harley Dale said industry can take some heart from the latest Australian PCI results.

"A contraction in engineering construction is hardly surprising, but commercial construction is very close to expansion mode, house building continues to expand, and apartments posted their best result in seven months," he said.

"Further growth in residential construction activity in 2014 will be important for the Australian economy given the positive flow-through such expansion has to segments of Australia's manufacturing, supplier, and retailing sectors.

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Strong growth fails to lift construction out of doldrums