First housing update for 2013 a disappointment: AIG/HIA

by Lena Woods09 Jan 2013

The national construction sector finished 2012 in negative territory, according to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI).

The seasonally adjusted index was 1.8 points stronger at 38.8 in December. Readings below 50 indicate a contraction in the industry, with the distance from 50 indicative of the strength of the decline.

A slowing in the pace of decline across new orders (up 8.3 points to 42.6) and construction activity (3.8 points higher at 39.6) contributed to the stronger December index.

Across the sectors, commercial construction and engineering construction contracted at a slower pace, while house and apartment building declined further.

Australian Industry Group director public policy, Peter Burn, says Australian construction activity ended 2012 as it began, entrenched in negative territory.

“Not surprisingly, given the toughness of business conditions, the industry is continuing to reduce employment. There are, however, some signs that 2013 might see more positive conditions.”

For the industry as a whole, new orders declined at a distinctly slower rate last month.

Burn says the most worrying aspect for the outlook is the steeper decline in new orders within the residential building sector, with low consumer confidence continuing to weigh heavily on demand.

Housing Industry Association Chief Economist, Harley Dale, says that, while a third consecutive slowing in the overall pace of contraction in the Australian PCI marks an encouraging end to the year, the updates for housing are ‘disappointing’.

Detached house building represents well over 60% of all residential construction activity in Australia and the December 2012 Australian PCI points to a steeper decline in activity and new orders, not to mention employment.

That is a concerning update, according to HIA, which aligns with other indicators suggesting a deterioration in pre-existing weak conditions for detached house building in the latter part of last year.

Dale says activity in the apartments sector only lost a modest amount of the ground gained in November while new orders contracted at a slower pace, but monthly iterations still revolve around clear contractionary conditions.

“All up, if policy makers were hoping the first housing update out in 2013 would deliver a signal of current policy settings boosting the chance of a new home building recovery, they’re going to have to keep hoping.”