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Australia Construction Index Sees Slower Expansion - AiG

An index measuring activity in Australia's construction sector saw a seasonally adjusted score of 50.8 in December, the latest survey from the Australia Industry Group revealed on Wednesday in its Performance of Construction Index - expanding for the third consecutive month.

The headline figure is down sharply from 55.2 in November - although it remains above the boom-or-bust score of 50 that separates expansion from contraction.

"The Australian PCI effectively 'paused for breath' in December, easing its rate of growth after a strong march forward over the previous several months," Housing Industry Association Chief Economist, Harley Dale said in a release accompanying the data. "The key is that the index remained in expansionary territory. Four months of such expansion, following as it does years of contraction, is an important tick in the box for Australia's growth prospects in 2014 given the position of the Australian PCI as a key leading indicator of Australia's construction activity."

House building remained the strongest performer, rising from 62.0 to 63.5 - marking the second highest rate of expansion since the survey's inception in September 2005. Growth in apartment building also remained healthy at 56.0.

New orders were in positive territory (58.6) again in December with positive contributions in each of the four sub-sectors. Commercial construction (50.8) and apartments (56.0) also remained in the black while engineering (46.1) slipped back into negative territory. Employment also contracted following two consecutive months of growth (48.1).

The selling prices sub-index moved above 50 for the first time since October 2010 with a sharp lift of 10 points to 54.9, while input prices remained high at 66.7.

Reports from house builders suggests that customer enquiries and buyer confidence remains solid despite slower uptake of new orders, AiG said. The main constraints on activity continue to be tight credit conditions and a lack of public sector building activity.

"The recent spurt of growth in residential construction continued in December with ongoing strength in both apartment and house building activity," said Peter Burns, AiG's Director of Public Policy. "In line with the easing of the mining investment boom, engineering construction was weaker in December and with further falls in store; the time is ripe for a much more decisive focus on building new and upgrading existing transport infrastructure. Commercial construction, while only just in positive territory in December, is showing signs that the extended recession in this sector may be drawing to a close."

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