Australia's construction sector is still contracting

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The release of the AiGroup/HIA Performance of Construction index this morning brings uncomfortable economic news and another pointer to what the RBA saw that many missed.

The index rose 1.5 points but that still left it deeply in the contraction zone with a print of 45.9.

More troubling is that while Australia’s construction sector, and housing especially, has been the great hope for an economy in need of transition, the signs in this index suggest housing has not only stalled but is going backwards.

All four sub-sectors contracted, “with steeper rates of decline evident in both house (down 5.4 points to 40.9) and apartment building (down 1.4 points to 42.3) activity.”

Peter Burns, Ai Group Director of Public Policy, noted:

The easing of activity in the residential construction sub-sectors that was evident in the closing months of 2014 continued in January with house building slipping sharply and apartment building activity easing again. This, combined with the well-entrenched contraction in engineering construction and a commercial construction sector that remained in negative territory, saw overall construction activity fall for the third consecutive month. With new orders in three of the sub-sectors also contracting further in January and new orders in commercial construction treading water, the immediate outlook is not encouraging.

That is not good news and even the usually sunny Harley Dale, Chief Economist of the Housing Industry Association, couldn’t gilt this lily. Dale said, “The January Australian PCI result is unequivocally disappointing, but let’s see what February brings.”

Builders and the RBA will be hoping this week’s rate cut might be a circuit breaker.

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