We just received another signal that Australia's apartment building boom is waning

Sydney’s Barangaroo construction site. Photo: Getty Images

Australia’s manufacturing, services and construction sectors all saw activity levels improve in July, a resilient performance considering all the uncertainty present during the month.

After seeing both the PMI and PSI print above 50 earlier this week, Australia’s performance of construction index (PCI), released by the Ai Group in conjunction with the HIA, came in at 51.6, signaling that activity levels expanded modestly over July.

Although 1.6 points lower than the June level, the reading indicates “a positive but slower pace of overall industry growth,” said the Ai Group.

The PCI measures changes in activity levels across Australia’s construction sector from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

Across the four sub-sectors, apartment building contracted for the second time in three months, falling 7.2 points to 48.0.

While a volatile gauge at the best of times, much like Australia’s building approvals report released by the ABS, it now sits well below its 12-month average of 55.5.

The other measure on residential construction, home building, recorded a third month of growth, albeit at a slower pace.

Elsewhere commercial construction activity also moderated, falling 1.5 points to 51.8, while activity levels across engineering construction sector fell back into negative territory as a slowdown in mining-related work outweighed support from higher non-resources infrastructure work.

According to the AiG, the close Federal election may have contributed to the slowdown seen in July.

“Uncertainty related to the Federal election on 2 July appears to have contributed to the industry’s growth slowdown with businesses noting delays in clients’ spending decisions and a reduction in new tender opportunities ahead of the election.”

Suggesting that activity levels will remain firm in the months ahead, the subindex on new orders came in at 51.7, down fractionally on the levels seen in June.

The employment subindex also eased — signalling a slower pace of hiring — with the gauge falling 1.7 points to 52.2.

“Residential builders cited an easing in new orders and customer enquiries in July, although activity continued to receive a high degree of support from on-going projects while investor activity was seen as remaining steady in the month,” said the Ai Group.

The breakdown of the July report did not come as a surprise to Shane Garrett, senior economist at the HIA, who suggests it was consistent with other housing indicators.

“The Ai Group-HIA data for July 2016 is consistent with the process of realignment of new home building activity,” he said.

“Apartment building is falling back from record levels while detached house building is a bit stronger. We expect that the share of new home building accounted for by apartments will decline to more long-term levels over the next few years.”

Garrett also took aim at Australia’s largest banks, joining many others, in suggesting that not passing on the full Reserve Bank of Australia’s interest rate cut will do little to support the residential construction sector.

“The failure of the major banks to pass on Tuesday’s RBA interest rate cut means that any benefits for new home building activity are likely to be limited,” he noted.

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