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Cracks are forming in Australia's residential construction sector

Photo by Steve Eason/Hulton Archive/Getty Images

Activity levels across Australia’s construction sector declined for a second consecutive month in January.

The latest HIA-AIG Performance of Construction Index (PCI) came in at 46.3, down 0.5 points on the 46.8 level of December.

It was the lowest level recorded since February 2015.

Like all PMI gauges, a reading of 50 is deemed neutral, with a reading below 50 indicating that activity levels contracted compared to a month earlier.

All sectors bar housing construction saw activity levels decline.

Apartment construction came in at 46.4, down 7.9 points on December, while commercial and engineering construction languished deep in contractionary territory at 36.5 and 41.5 respectively.

Fitting with the surge in detached housing approvals seen in December, housing construction activity levels continued to expand, falling 0.3 points to 52.3.

Clearly the gulf in conditions for residential and non-residential construction firms remained as wide as ever at the start of 2016.

The survey’s subindices also posted mixed results.

The table below, supplied by Ai Group, reveals the internal movements over the month.

While most remained above the 50 level, the new orders gauge – a lead indicator on future levels of activity – slumped by 0.8 points to 43.5.

Peter Burn, head of policy at the Ai Group, suggests that the contraction in apartment building and new orders is worrying.

“The further fall in construction in January is concerning both for the industry itself and for the broader economy,” he said.

“Over recent months the construction sector became increasingly dependent on the continuing strength of residential construction and particularly apartment building. While house building maintained momentum in January, the apartment sector dropped dramatically joining commercial and engineering construction in negative territory.

“The drop in apartment activity, together with the decline in new orders across all four construction sub-sectors, suggests that construction may not play the leading role in rebalancing the broader economy that it played in 2015. This emphasises once again the importance of developing new sources of growth across the economy.”

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