Construction Activity slumps - Sydney Morning Herald 6-6-08
Australia's construction sector contracted sharply for a third straight month in May, as high interest rates and slumping customer confidence drove activity to its lowest in over two years, a survey showed.
The Australian Industry Group/Housing Industry Association performance of construction index (PCI) sank 5.7 points to 36.9 in May. That was far below the 50.0 level separating expansion from contraction and the lowest reading since the survey began in September 2005. As recently as January it had been up at 58.6.
''This leading indicator of the industry signals that higher interest rates, tighter liquidity, and lower confidence levels are having a broad based impact on activity,'' said AiG Director, Economics and Research, Tony Pensabene.
The Reserve Bank of Australia raised interest rates to a 12-year high of 7.25% in March, the second hike in as many months. Meanwhile, commercial banks had lifted their rates even further as the global credit squeeze raised funding costs, and had become more frugal in their lending.
''Of concern, new orders for the industry as a whole are now at their lowest level in almost three years, which means that the current weakness in activity is likely to persist during the months ahead,'' added Pensabene.
The survey of 120 companies showed its index of new orders dropped to 36.1 in May, from an already soft 40.6 in April. The survey's measure of activity fell 3.4 points to 34.3.
Building of commercial property like shopping malls and offices dropped a steep 10.4 points to just 27.7 in May 10.3 points to 38.1 with firms complaining of tighter credit conditions and delays on new projects.
The housing sector remained deep in the doldrums as mortgage rates and construction costs kept rising. The measure of house construction shed 5.7 points to 30.6, while apartment building contracted at a slightly slower pace.
As a result, demand for labour contracted, with that index dropping 7.6 points to 36.5.
Rising steel and oil prices, lifted the index of input prices to an 18-month peak of 88.3, while selling prices picked up to 59.4.
