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Construction has sluggish start to 2015

The Australian Industry Group (Ai Group) and Housing Industry Association’s (HIA’s) Australian Performance of Construction Index (PCI) indicates a contraction in activity when readings are below 50, with the distance from 50 indicating the rate of the contraction. In January, the PCI increased 1.5 points to 45.9.

Activity in all four construction subsectors also continued to slow, with some showing steeper rates of decline than in previous months.

Engineering construction remained relatively unchanged, being only half a point down to 44.7 points, but January was the seventh consecutive month the sector had been in contraction.

Commercial construction remained in contraction at 49 points but this was after an increase of 7.4 points, indicating a slower rate of decline and a move towards stabilisation.

The indexes for both house and apartment building activity also fell by 5.4 points to 40.9 and 1.4 points to 42.3 respectively.

“The immediate outlook is not encouraging,” Ai Group director of public policy Peter Burn said. “[The recent] cut in interest rates should boost activity in the months ahead, even though the long-awaited pick-up in business and household confidence is yet to materialise.”

HIA chief economist Harley Dale agreed the results had been “unequivocally disappointing” but suggested February might bring more positive news for construction.

“Results for the new house building and apartment indices over the last six months are, in aggregate, consistent with healthy levels of residential construction in the short term. Evidence of further growth potential is what we need and will come from a return to expansion in forthcoming monthly Australian PCI results,” he said.

“Let’s also keep an eye on the commercial sector,” Dale added. “Should a February rate cut and a slow turnaround in business credit growth gather pace, the PCI will quickly pick up an improving environment.”

The Australian PCI is a seasonally adjusted national composite index jointly issued by the Ai Group and the HIA. The monthly report is based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights.

The full January PCI report is available at www.aigroup.com.au

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