Australian construction sector contracts in September at sharpest rate for 12 months; country's Performance of Construction Index drops by 1.3 points to 30.9, weakest performers are apartment and house building

Wendy Lisney

CAMPBELL, Australia , October 5, 2012 (press release) – The latest Australian Industry Group Australian Performance of Construction Index (Australian PCI®), in conjunction with the Housing Industry Association, shows the national construction sector contracted at its sharpest rate in twelve months in September. The seasonally adjusted index declined by 1.3 points to 30.9 in September (readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline).

All major sub-sectors recorded declines in activity in the month with apartment (26.0) and house building (28.5) the two weakest performers. The new orders sub-index was down across construction (29.1) with the index having now been in decline for 28 consecutive months.

Australian Industry Group Chief Economist, Julie Toth, said: "This month’s Australian PCI® continues to show that the capital-intensive activity under way at present in mining-related engineering construction work in some states is simply not filling the gap left by the severe national downturn in residential and commercial construction. This is particularly apparent in the new orders and employment measures, which are yet to show a meaningful turning point but which should hopefully be supported by this week’s welcome rate cut decision. This month’s Australian PCI® tallies with the trends being seen in national ABS building approvals data, which are still exceedingly weak. This cyclical downturn in building activity is having major knock-on effects for other industries, up and down the construction and housing supply chains," Ms Toth said.

Housing Industry Association Chief Economist, Harley Dale, said: "The Australian PCI® update for September provides further evidence that residential construction is the weakest sector of the Australian economy, with the commercial arm not far behind. Of most concern is that an update for the end of the September 2012 quarter is showing the sharpest rate of contraction in construction for 12 months. This finding comes against a backdrop of new residential construction activity already falling back to a recessionary level last financial year and provides a sombre account of the short term prospects for the domestic economy. The first September 2012 update available for Australia’s construction industry supports not only the October rate cut decision, but the requirement for a follow-up move in November," Mr Dale said.

Australian PCI® Key Findings for September:

 The latest Australian Industry Group Australian Performance of Construction Index (Australian PCI®), in conjunction with the Housing Industry Association, was down 1.3 points to 30.9 in September (readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decrease).

 The Australian PCI® has now been in negative territory for more than two straight years.

 Across construction: house building fell by 3.0 points to 28.5, commercial construction dropped 4.4 points to 29.6, apartment building was up 3.9 points to 26.0 and engineering construction lost 3.0 points to 32.7.

 Subdued demand, low consumer confidence together with a decrease in public spending on infrastructure was among the factors which weighed heavily on activity.

 New orders contracted for the 28th consecutive month – the most pronounced drop in new orders activity was in house building (24.8).

 Input prices remained high in September (68.3) while selling prices (35.9) continued to decline.

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