Building slump worsens

Construction rates have biggest fall for six years

CONSTRUCTION rates across Australia had their sharpest falls in six years in May as the building of houses and apartments slowed and jobs in the sector continued to trail off, according to a survey of businesses in the industry.

The Australian Industry Group/Housing Industry Association Performance of Construction Index (PCI) report, released yesterday, said overall activity slipped 2.2 points on the previous month to 40.4 – an accelerated decline below the 50-point mark separating expansion and contraction.

The PCI recorded a 14th month of shrinking apartment-building activity and indications that house building contracted for the 10th month in a row.

The pace of houses being built was at its weakest level since September 2012 and the report suggested there was no recovery in sight, given new orders in May fell at their steepest rates in six and a half years.

“This indicates a continuation of broad weakness in demand and points to ongoing subdued house-building activity in coming months,” the PCI report said.

It noted dwindling demand for residential building construction was affecting job prospects in the sector, with employment shrinking for the tenth consecutive month.

“It indicates that construction businesses are responding to the ongoing weakness of overall demand conditions by exerting greater caution in terms of their labour recruitment,” the report said.

Analysts from AiG and the HIA said the construction industry may yet benefit from the federal election on May 18 and Tuesday’s interest rate cut by the Reserve Bank of Australia but there was no positive news in the data so far.

“The industry and businesses in its supply chains will be hoping that lower official interest rates will flow through to borrowers and help turn around the recent negative trends,” Ai Group head of policy Peter Burn said.

HIA economist Tom Devitt said: “With major banks set to pass on most of the RBA’s rate cut to borrowers, it will be interesting to note whether any post-election glee translates to a lift in new orders in June.”

Respondents to the PCI survey in the residential building sector pointed to a drop in demand, tight lending conditions and falling property prices.