Will the RBA rate cut prove to be stimulant for the construction industry?

Team Veye | 11-Jun-2019 construction industry asx

Construction rates across Australia had their sharpest falls in six years in May as the building of houses and apartments slowed and jobs in the sector continued to trail off, according to the Australian Industry Group.

Australian Housing remained subdued, with construction activity continuing to contract. The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) dropped a further 2.2 points to 40.4 in May, marking nine consecutive months of contraction. Readings below 50 indicate contraction inactivity, with the distance from 50 indicating the strength of the decrease.

 Three of the four construction sectors in the Australian PCI continued to contract in May, with only engineering construction achieving stability (up 0.4 points to 50.3). House building was the weakest performing sector, declining for a 10th straight month (down 0.4 points to 34.4), while apartment building also remained firmly in negative territory (up 2.0 points to 37.7).

Analysts from AiG and the HIA said the construction industry may yet benefit from the federal election and interest rate cut by the Reserve Bank of Australia, but there was no positive news in the data so far.

“The industry and businesses in its supply chains will be hoping that lower official interest rates will flow through to borrowers and help turn around the recent negative trends,” Ai Group head of policy, Peter Burn, said.

Respondents to the PCI survey in the residential building sector pointed to a drop in demand, tight lending conditions and falling property prices.

The value of new lending commitments to households rose 0.6 percent in April 2019, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) figures on new lending to households and businesses.

The rise in new lending to households in April follows a 3.3 percent fall in March 2019. 

The selling prices index continued to contract in May, albeit at an easing rate of decline compared to April's six-year low (up 4.4 points to 36.2). The sizable gap between the input and selling price indices demonstrates that profit margins are being squeezed for many businesses in the construction industry, according to the team compiling the results.


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