The construction industry continues to experience recessive conditions, experiencing the sharpest decline in activity in six years, according to a report from ABC.

The Australian Performance of Construction Index (PCI) fell 3.9% to 39.1%. It is the eleventh consecutive month of contraction in the PCI, the report said.

The problem was worse in the residential building sector, according to Peter Burn, head of policy at The Australian Industry Group (Ai Group).

“Looking ahead, conditions look more fragile than they have for some time, with new orders dropping further into negative territory, driven by particular weakness in the pipelines of new work in the housing and apartment sectors,” Burn said.

The recession also hits job prospects across the sector, the report said.

Employment across the sector fell 7.7% to 35.9%, the PCI employment index showed.

The drop indicates a general reluctance from businesses to increase their workforce capacity amid ongoing soft demand at an aggregate level, according to the report.

Tighter profit margins also hit builders, with the continued contraction of selling prices in July, the report said.

“This negative reading indicates that rising input prices and other costs are not, on average, being passed on to customers, as profit margins continue to be squeezed for businesses in the construction industry,” said Burn.

However, there are signs that the pace of decline is moderate despite the contraction in residential building, according to Tom Devitt, an economist at the Housing Industry Association (HIA).

“The positive impact of two cuts to the cash rate and cuts to personal income tax rates will take time to have an impact on residential building, but it provides a sound basis to expect that the decline in activity will slow over the months ahead,” Devitt said.