Construction levels hit lowest point in more than a year

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Construction activity in Australia is at its lowest point in more than a year according to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index.

During March the PCI fell 0.9 points to 45.2, the lowest it has been in 13 months.

The PCI takes in account all forms of construction in the country and a score of 50 or more means construction activity is growing, while a score lower than 50 means the sector is contracting.

The overall slowdown was felt across all construction sectors; however it was the residential sector that saw the biggest contractions over the month.

Apartment construction is still considered to be expanding with an index score of 51.6, though it did see activity fall 4.7 points over the month.

Detached house building continued to contract during March, with its index score pulling back by another 2 points to 41.1.

Ai policy head Peter Burn said the current state of the construction sector reflects the ongoing fallout from the end of the mining boom and said contraction is likely to continue.

“The overall decline in the residential sectors' performance follows the retreat in recent months of dwelling approvals - admittedly from very strong levels. Declining engineering construction continues to be a drag on the construction sector and the broader economy as mining-related work continues to roll back,” Burn said.

“While activity in the commercial construction sub-sector lifted slightly, new orders for commercial projects continued a run of falls. With new orders across the sector also falling, the immediate outlook for construction is for further contraction,” he said.

HIA economist Gideon Murray agreed with Burn’s outlook and said the March index results add more weight to the idea that the residential construction sector has moved past its peak.

“The old story about mining-related construction coming back down to earth, while other sectors struggle to fill the void, continues to come through in the Australian PCI data. The strong level of residential building over the last couple of years has partially offset the fall in engineering construction,” Murray said.

“However, it is our view that residential building activity reached a peak in the cycle in 2015. While there is a good pipeline of work that should sustain an elevated level of residential activity throughout the first half of 2016, the falls in the Australian PCI indexes for houses and apartments imply residential activity may ease in the latter part of the year,” he said.

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