While national construction remained in negative territory in October, there were signs of improvement in the rates of decline, according to the latest Australian Industry Group Australian Performance of Construction Index (Australian PCI).

The decline in activity easing across all the four sub-sectors, with house building recorded its least pronounced decline in four months (up 9.2 points to 33.3).

Engineering construction remained the most resilient sector (up 2.5 points to 44.1), largely due to support from infrastructure and resource-based projects.

The Australian PCI, compiled in conjunction with the Housing Industry Association, showed the seasonally adjusted index lifted 4.7 points to 34.7 while remaining well below the 50 point level separating expansion from contraction.

The survey also suggests that the pace of decline in new orders may have passed a low point with a lift of 8.0 points to 31.9 in the month.

Australian Industry Group Director Public Policy, Peter Burn, said: "The ongoing weakness in the construction sector, most notably in the housing, apartment and commercial construction sub-sectors, continues to hold back overall economic activity and in particular activity in those industries, such as manufacturing, with close links to construction.

"The easing of the pace of decline in overall construction activity and the turnaround in the Australian PCI new orders sub-index after a steepening pace of decline over the year to date, is somewhat encouraging. While global economic uncertainties persist and domestic confidence is yet to bounce back, the Reserve Bank’s decision last week to reduce interest rates could help build the momentum towards recovery in the sector over coming months," Dr Burn said.

Housing Industry Association Acting Chief Economist, Andrew Harvey, said: "While it’s disappointing that the level of house building activity continues to contract, it is good news that the speed of decline in that contraction looks to be moderating.

"This trend combined with the eventual impact of Tuesday’s interest rate cut will hopefully see a return to expansion in activity in the longer term. A moderation in the rate of decline in new orders for houses and apartments also gives some hope of an eventual return to growth in residential building activity levels," Harvey said.

Australian PCI Key Findings for October:

  • The October Australian PCI marks the 17th consecutive month of contraction for the construction sector.
  • While all major sub-sectors remained in the red in the October, all improved on the previous month with house building up 9.2 points to 33.3, apartment building 4.6 points stronger to 25.6, commercial construction up 5.5 points to 31.3 and engineering construction lifting 2.5 points to 44.1.
  • A number of engineering construction businesses pointed to strong support from infrastructure and resources-based projects as driving the improvements in the sub-sector.
  • The new orders sub-index was 8.0 points stronger at 31.9 in October.
  • Construction employment continued to decline in October, although at a slower pace, up 5.0 points to 37.3.
  • Selling prices moved from 34.6 in September to 32.8 in October

Boral half-year results

Meanwhile, Boral's performance result have reflected the weak residential market, with chief executive Mark Selway telling shareholders at their annual meeting last week that he expects the company's first-half performance this year to be weaker than the corresponding period last year.

Commenting on the impact of the interest rate cut, he said "there would have to be another three cuts before we get some buoyancy back into the residential market".

Boral has downgraded its residential building starts to 136,000-140,000, which is down from 140,000-145,000 in the previous report.