Australia's Construction Sector Contracts Further In February

Getty/Justin Sullivan

Data flow is hardly ever universally one-way.

So this morning’s release of the Australian Industry Group’s (AiG) and Housing Industry Association (HIA) contracting Performance of Construction Index is a reminder that the strong Q4 GDP we saw this week along with the big uptick in retail sales for January are signs of an Australian recovery and transition to growth, not guarantees of it.

The AiG and HIA in a press release did not gild the lily, saying:

The national construction sector fell further into negative territory in February following a sharp fall in new orders and a decline in construction activity. The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) fell by 4.0 points to 44.2 in February (readings below 50 indicate a contraction in performance).

44.2 is a pretty weak number and the RBA will be disappointed in this data given that housing construction is expected to take the slack from the fall in mining investment projects in the years ahead.

HIA chief economist Harley Dale tried to put the data in the best light saying that “The expansionary readings for the house building and commercial building components of the Australian PCI® in February provide encouraging updates.”

But he did note that “the headline Australian PCI® results, especially the decline back into negative territory for new orders, is a reminder of the magnitude of Australia’s challenge in achieving a successful economic transition away from resource sector-oriented investment”.

RBA Governor Stevens, who is addressing the House of Representatives’ Standing Committee on Economics this morning, might be expected to make similar points.

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