Construction at strongest in years, but still declining

A return to growth in the house building and apartment building sub-sectors have boosted national construction to the point where it’s recording its strongest reading in three and a half years in September, according to the Australian Performance of Construction Index.

While this positive result was seen, with a 3.9 point lift, the index record stayed just under the 50 “break even” point at 47.6.

Growth in new orders was listed as the reason for expansion in activity for the first time since April 2010.

Australian Industry Group chief economist, Julie Toth, said that the construction sector is now closer to stabilisation more so than at any time up until 2010.

“The housing and apartment sectors are driving the industry’s improved performance on the back of lower interest rates and a lift in buyer sentiment. Meanwhile, declines in both commercial and engineering construction moderated in the month,” said Toth.

“Despite these encouraging trends, it is clear that the industry continues to face a tough operating environment with impediments such as tight credit conditions and a lack of public sector building activity continuing to weigh on overall activity. Nevertheless, with new orders increasing for the first time since May 2010, there are grounds for cautious optimism that the current improving trend can be sustained in coming months,” she said.

Propell National Valuers economist, Linda Phillips, said that it's worthwhile remembering that there's still strictly a decline - it's just a slower decline than has been seen in recent times.

"What is actually happening is that the construction sector continued to decline in September, but is declining at its slowest pace in 3 1/2 years and is expected to level off in the coming months, pointing to a possible expansion in the new year," said Phillips.

"A reading of 50 is a breakeven point, indicating that activity is neither increasing nor declining. The index has climbed to 47.6 in September, which means that construction activity is still declining, but by not as much as previously. However, with improvements in housing construction demand, it is likely that the index will move towards breakeven in coming months," she said.