MNI 5 Things: Australia Construction Supported By Engg, Houses

--Apartment Construction Contracts Fastest Rate In 5 Years

--Commercial Construction Slips Into Contraction

By Sophia Rodrigues

     SYDNEY (MNI) - The performance of construction index for July was published

by AI Group/Housing Industry Association on Tuesday. Below are the five key

observations we made from the survey: 

     --The index rose in July to mark 18 straight months of expansion but the

pace has slowed considerably in recent months. The expansion is mainly supported

by engineering construction, up 3.4 points to 54.4, and house-building, up 0.1

point to 50.3. Apartments, on the other hand, slipped firmly into contraction

and at the fastest rate in five years (down 11.7 points to 36.7) and commercial

contracted in July, down 4.6 points to 49.1.

     --Both input prices and wages rose in July but selling prices sub-index

fell (down 2.1 points to 51.4). The rise in input prices indicates cost

pressures are lifting and increase in wages reflect heightened demand for

construction workers and difficulties in filling skilled vacancies. However,

competition remains intense and businesses are still not able to fully pass on

cost increases to customers.

     --Capacity utilization and employment -- the two main indicators which

suggest pressure on the industry to invest and hire -- rose in July. Employment

rose 2.6 points to move back into expansion, and capacity utilization rose 6.5

points to 77.8.

     --New orders rose 0.6 point to move slightly into expansion due to rise in

house-building orders which offset the decline in new orders in the other three

sectors. Apartment-building orders fell 3.5 points to 38.4 to mark the weakest

result in 26 months. Commercial and engineering new orders also fell but that

follows 12-15 months of consistent expansion.

     --Engineering construction is the strongest performing area of activity

consistent with reports of new tender wins and ongoing support from a strong and

expanding pipeline of publicly funded investment in major infrastructure

projects. So this sector needs to be watched closely in coming months.

House-building is another area supporting construction but some businesses have

noted that tighter lending conditions were having a constraining influence on

the housing market.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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