Enter Details

Comment on stories, receive email newsletters & alerts.

This is your permanent identity for Business Insider Australia
Your email must be valid for account activation
Minimum of 8 standard keyboard characters


Email newsletters but will contain a brief summary of our top stories and news alerts.

Forgotten Password

Enter Details

Back to log in

Australia's construction sector is shrinking at a faster rate

Sydney’s Barangaroo construction site. Photo: Getty Images

Activity levels across Australia’s construction sector contracted at a faster pace in February, bucking strength seen in the nation’s manufacturing and services sectors during the month.

The Ai Group-HIA performance of construction index slid 0.2 points to 46.1, leaving it at the lowest level seen since February 2015.

Like all PMI indices, the index measures changes in activity levels from one month to the next. A figure of 50 is deemed neutral, meaning activity levels remained unchanged from the month prior.

At 46.1, it signals that activity levels contracted at the fastest pace in a year in February. It was also the third month in a row that activity levels contracted.

While the headline index was largely unchanged, the internal movements by sector were anything but – they were wild.

Residential housing construction, having been the fastest expanding sector in January, plummeted by 9.2 points to 43.1, marking the fastest contraction of any sector during February.

Counteracting that weakness, the measure on residential apartment construction jumped by 9.9 points to 56.3, marking the fastest expansion of any sector during the month. Just one month earlier it recorded the fastest contraction of all sectors.

Adding to the wild movements seen in residential activity, the gauge measuring commercial construction activity, jumped by 15.4 points to 51.9, leaving it in expansionary territory.

While they continued to contract, activity levels in engineering construction – tied closely to the fortunes of mining infrastructure spending – rose by 5 points to 43.9.

It was the twentieth straight month that activity levels in engineering contracted.

While the individual sector performances were wild, most of the surveys activity subindices deteriorated, led by another worrying decline in new orders, a forward indicator on future levels of construction activity.

At 41.2, the new orders index hit the lowest level seen since February 2015, and has contracted in each of the past four months.

A “weaker pipeline of new work was driven by a steeper decline in new orders in the house building sector,” said the Ai Group.

Along with the sharp decline in new orders, the surveys measures on employment, deliveries and selling prices all contracted.

The table below, supplied by the Ai Group, reveals the internal movements of the February survey.

To Peter Burn, the Ai Group’s head of policy, unless commercial construction and a pick-up in infrastructure investment can be maintained, “it is unlikely that the construction industry will be a source of growth for the economy or jobs in coming months’.

“The national construction sector continued to slide in February, marked by a sharp decline in the house building sub-sector,” says Burn. “Looking ahead, the fall in new orders – for the fourth consecutive month – points to further contraction for the construction industry as a whole.”

That sentiment was shared by Harley Dale, chief economist at the HIA, who suggested that “the new residential construction sector will maintain very healthy levels of activity this year, but will not generate further growth”.

Follow Business Insider Australia on Facebook, Twitter, and LinkedIn