Construction shrinks at slower pace

The construction industry shrank at a slower pace in October, as previous rate cuts started to boost real estate activity.

The Australian Industry Group - Housing Industry Association's Performance of Construction Index rose 4.9 points last month to 35.8, but this is still below the 50-point level that separates expansion from contraction.

Construction activity has now been falling for the past 29 months in a row.

The Australian Industry Group's head of public policy Dr Peter Burn says residential construction is showing tentative signs of a pick-up, but will be recovering from a low base.

"While the construction industry and particularly the commercial and residential construction sub-sectors are still contracting, the Australian PCI took a turn for the better in October with a cooling in the pace of decline," he noted in the report.

"This was most noticeable in the long-suffering house building sub-sector, where a combination of lower interest rates and a shift in the focus of new home buyer support have helped slow the pace of contraction." The HIA's chief economist Harley Dale says residential construction is doing even worse than the much talked about downturns in manufacturing and retail.

"I've long been of the view that the residential building sector is actually the weakest sector in the Australian economy in 2012," he said.

"We are ...

seeing a combination of both suppressed demand and structural supply issues combining to weigh down on construction activity."

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