Boom? Australia's construction sector is still contracting

(Photo by Thomas Lohnes/Getty Images)

The evidence is growing that only housing and construction are the beneficiaries of the RBA’s recent rate cut and the low-interest rate environment.

But data released this morning suggests the benefits of low rates and construction may be even narrower still.

The AiGroup/HIA Performance of Construction Index (PCI) for February shows that the national construction industry contracted for the fourth month in a row.

The PCI fell 2 points to 43.9. New orders tanked 6.9 points to 38.7 while activity (44.7), deliveries from suppliers (46.7) and employment (47.6) were roughly unchanged from the previous month.

Showing the narrowness of any strength in the sector only apartment building, which leapt 10.8 points to 53.1) was actually expanding. Housing rose as well up 4.5 points but it is still in the contraction zone at 45.4. Commercial building fell 7.2 points to 41.8 while engineering construction fell 2 to 42.7.

HIA Chief Economist, Harley Dale, said: “The dichotomy to Australia’s construction industry continues in 2015, with non-residential construction in varying stages of weakness, but the residential sector looking relatively strong. Detached housing ‘reads’ for the PCI are weaker overall, but still consistent with historically elevated volumes of construction, while the apartment sector has bounced back as we expected.”

Dichotomy indeed.

Australia is experiencing a very narrow growth corridor. One that highlights both the need for, but also risks from, more RBA rate cuts.

As RBA Deputy Governor Phil Lowe pointed out yesterday this data is just more evidence the gvernment needs to put in place the conditions for greater business confidence and a broader economic expansion.

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