The Economic Missing Link: Australian Construction Is Getting Stronger

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The missing link for Australian growth might have been found.

The Reserve Bank Governor Glenn Stevens is on the record as saying that Australia needs more construction to help bridge the gap as the economy makes the transition from the growth engine that was the mining investment boom.

The release this morning of the Australian Industry Group (AiG) and Housing Industry Association’s (HIA) Performance of Construction Index (PCI) suggests that construction is starting the fill the void.

AiG reports its PCI for November:

…expanded for the second consecutive month with an increase of 0.8 points to 55.2 (readings above 50 indicate an expansion in activity).

A boost in new orders (58.5) and deliveries (57.9) as well as continuing strength in overall activity (54.6) was behind the improved November reading. While house building and apartments lost some ground in the month, all of the major sub-sectors remained in growth territory.

Good news for Australia’s Economy

The HIA’s chief economist Harley Dale could not contain his enthusiasm noting in the report that accompanied the release:

Following the charge into expansionary territory in October it was important to see a further 50+ result in November – it’s great to see that outcome transpire. There appears to be little else in the way of upward momentum in private domestic demand at present, but the Australian PCI┬« results for house building and apartments signal further short term growth in the dwelling construction recovery.

This week’s GDP data disappointed markets but more recent data has suggested a stronger economy in Q4 than that which we saw in Q3. This PCI supports that notion and suggests solid momentum is building for growth into 2014.

As Governor Stevens like to say, the full effects of the interests rate cuts since 2011 are yet to come through – but here is evidence that they are coming.

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