CRASH: Australia's Construction Industry Is Contracting Again Pointing To RBA Rate Cuts

Photo: Getty/Ryan Pierse

When it comes to booms and busts, there is almost no sector in the Australian economy like construction.

So news this morning that the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (PCI) dropped 8.0 points to 45.4 isn’t entirely unexpected, even if it is disappointing.

AiG said in a release that:

The loss of momentum was driven by a decline in activity (down 6.7 points to 47.4) and new orders (down 8.5 points to 44.0) across all four construction industry sub-sectors in November. This contributed to a steeper fall in construction employment (down 8.5 points to 42.0) and a sharp deceleration in deliveries from suppliers (down 8.9 points to 50.1, indicating stability in deliveries).

Like building approvals data earlier this week, the latest figures show single dwelling housing is weakening while units seem to be holding it for the moment.

HIA chief economist Harley Dale summed up the import of this poor release beautifully saying that “a broad-based contraction in new orders is the most concerning” aspect. He also noted that “perceptions regarding Australia’s short-term economic outlook have dampened recently and today’s result will hardly buoy the prevailing mood. The rate of expansion in detached house and apartment building activity slowed in November, but at least both these sub-indices remained in the black. It will be disappointing if the rate of expansion in these Australian PCI components fails to re-accelerate in coming months given new home construction is currently the key domestic sector with promise of healthy activity in 2015.”

Dale is on the money and two things are worth noting here.

Firstly, the fall in the index is almost 20% in the past 3 months, from almost booming towards a bust.

Secondly, the RBA has put a lot of stock in dwelling construction as the panacea to the reduction in mining construction – so the fall in the employment index is a big disappointment and an economic negative.

Equally it is another sign rates and the Aussie dollar need to and will go lower in 2015.

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