Australian Construction Sector Expands After 18 Months Of Contraction

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Wednesday, results of a survey showed that Australia's construction industry expanded after 18 months of contraction in September, on the back of a surge in house building. The report also revealed that new orders were on the rise for the first time in nineteen months, and that employment levels in the construction sector increased for the first time in eighteen months.

The Australian Housing Group and the Housing Industry Association's Performance of Construction Index rose a seasonally adjusted 8.4 points to stand at 50.8 in September, well above the 42.4 reading in August. A reading above 50 indicates expansion, while one below 50 suggests contraction.

The survey results are based on a sample of nearly 100 companies.

The main positive influences on activity in September came from a robust rise in house building, combined with slower rates of decline in the apartments, engineering and commercial construction sectors, the report said.

Among the sub-indices, the construction activity index was at 50.0 in August, up from 40.5 in the previous month. Of this, house building expanded for the third straight month, rising 11.9 points from August to stand at 64.4. Engineering construction contracted at a much slower pace, with the index rising 10.2 points to 42.0. Apartment building declined for the twentieth straight month, but at a slower pace, with the index rising 1.9 points to 46.3. Commercial construction also declined at a much slower pace, with the index climbing 9.0 points to 48.6.

New orders showed expansion for the first time in nineteen months, although the overall growth was at a modest level. The new orders index in September was at 51.0, up 8.5 points from the previous month. New orders in the house building sector rose 14.5 points to 68.3. New orders in apartments and engineering construction continued to fall, albeit at a slower pace. New orders declined in the commercial building sector, with the index falling 0.2 points from the preceding month to 47.0.

The employment sub-index was at 51.8, up 9.2 points from August's reading, marking the first expansion in employment levels in eighteen months. Growth in wages was at a slightly slower rate, with the index decreasing 0.3 points from August to stand at 55.3 in September.

Further, the supplier delivery index expanded for the first time in thirteen months, to stand at 50.4 in September compared to 45.7 in the previous month. Input prices rose at a higher pace in September, with the index registering 70.6 compared to 70.0 in August. On the other hand, output prices posted a modest rise, with the index at 50.5 in September compared to 48.7 in August.

Meanwhile, the Housing Industry Association (HIA) voiced concerns regarding the impact that the hike in overall cash rate will have on the housing sector. The Reserve Bank of Australia unexpectedly raised its benchmark interest rate by 25 basis points to 3.25% in yesterday's monetary policy meeting.

"There is a big risk that the increase in official rates will blunt consumer confidence and business confidence that is crucial to the prospects for an economic recovery," commented Dr. Harley Dale, HIA Chief Economist. "Although there are some encouraging signs the economy has avoided falling off a cliff, it is still far too early to call an economic recovery."

He claimed that the pick-up in housing activity had been supported by a combination of low interest rates and the First Home Owners' Boost and that these key drivers were now in reverse. He added that the increase in the key rate will constrain recovery in rental investment, harming a more broadly-based recovery in housing activity.

In a separate report, the Australian Bureau of Statistics announced that the value of dwellings approved for construction in Australia in August increased a seasonally adjusted 0.7% on month. Total housing finance amounted to A$22.8 billion in August. The statistical agency also revealed that the value of owner-occupied housing permits was down 1.7% on month, while the number of permits decreased 0.6%.

Wednesday, results of a survey showed that Australia's construction industry expanded after 18 months of contraction in September, on the back of a surge in house building. The report also revealed that new orders were on the rise for the first time in nineteen months, and that employment levels in the construction sector increased for the first time in eighteen months. (Market News Provided by RTTNews)