Apartment construction activity records sharpest fall in 10 months in June: AIG/HIA construction index

The construction industry continued to contract in June, with the biggest decline recorded in the building of new apartments, according to the Australian Industry Group Australian (AI Group) Performance of Construction Index. 

The overall index, compiled in conjunction with the Housing Industry Association (HIA), remained broadly unchanged at 34.8 and in steep contraction given that a reading of 50 or below indicates a contraction in activity. 

The index has now been in contracting for 25 straight months, reaching its lowest reading of 28.9 in February 2009.

The apartment building sub-sector index fell from 26.7 in May to 21.8 to be the weakest sub-sector, recording its steepest fall in 10 months. 

Both residential and commercial construction sub-sectors remained “deeply in “negative territory in the month. 

"The residential and commercial construction sub-sectors continue to be a drag on overall business activity, with lack of demand and access to finance both holding these important sub-sectors back,” says Peter Burn, director of public policy at Ai Group. 

“Engineering construction (down to a reading of 39.9) is stronger particularly due to mining-related projects but the overall construction sector continues to languish," Burn adds. 

HIA chief economist Dr Harley Dale noted the “steeper contraction in new orders for detached houses and apartments”, which he says “unfortunately confirm that new home building conditions will deteriorate further in the second half of 2012”. 

“Residential construction activity looks set to trough at GFC-equivalent levels and yet we’re not in the midst of the GFC. That is a concerning update on Australia’s economic prospects and policy makers should heed this clear signal for policy action," Dale says. 

The results of the index also reveal that poor demand and falling workloads impacted heavily on activity (down from 30.2 to 28.9), new orders (down from 33.7 to 33.4) and employment (up marginally from 38.4 to 38.7) in June. 

Engineering construction remains the strongest sector despite falling by 1.4 points to 39.9 in June.