Yuk: Aussie Construction Index Negative For Its THIRTY-NINTH Consecutive Month

It is easy to be really downcast about the performance of industry and the data we have been seeing from the Australian Industry Group (AiG) surveys and other measures of business activity and sentiment lately.

Today saw the release of the AiG Performance of construction index which was in negative territory, indicating contraction, for the 39th month in a row printing at just 43.7 for the month of August which was 0.4 lower than July.

The AiG’s Group Director of Public Policy, Peter Burn, put a brave face on the result saying:

Although the construction industry remains in a fragile state, there are early signs of a very gradual improvement in overall conditions. On the positive side, the house building sector remains close to the point of stabilisation with lower interest rates starting to provide some support to levels of activity and new orders within the sector. However, clearly we need to see much stronger conditions to offset the slack resulting from the winding down in mining related projects and the distinct weakness that persists in commercial and apartment building activity

But the chief economist at the Housing Industry Association (co-publisher of the index), Harley Dale – who is the best housing economist in Australia – noted that there is a lot of wood to chop before a decent or sustainable recovery in this sector of the economy begins. Dale said:

There are tentative signs of improvement in the Australian PCI results of recent months. However, it speaks volumes of the recovery task ahead that the headline index contracted for a 39th consecutive month in August and the sub-indices for both activity and new orders remain in contracting territory for all four construction sectors. In other words there is a very long way to go, even though super low interest rates are providing some welcome assistance. Against the backdrop of tight credit conditions for residential and commercial projects and an insufficient focus on policy reform, the necessary goal of achieving healthy levels of non-mining related construction activity will remain elusive…

This is just another sign that the transition in the economy is going to be a difficult one and that the longer that volumes and prices for our mining exports hold up and the quicker the Australian dollar falls the better the economy is going to be.

The RBA will be watching.

Greg McKenna is an active currency trader – he is currently square.

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