Construction activity down in January

Construction activity has fallen away during the month of January, mostly due to tightening of lending policies with respect to construction loans. This is despite the fact that interest rates were reduced twice late last year.

The AIG Australian Performance of Construction Index declined to a seasonally adjusted 1.2 points to 39.8 in January, marking the 20th consecutive month that the sector has contracted. This represents an overall reduction in activity of 50%.

This reduction certainly builds the case for more interest rate cuts during 2012. Unfortunately as of February, RBA have decided to keep interest rates on hold. This decision will not assist the housing construction sector in any way.

Low inflation, an uncertain global backdrop and signs of weakness in the job market were expected to validate the cut in the benchmark cash rate to 4 per cent from 4.25 per cent. However this did not occur.

Construction activity was particularly low in the commercial and apartment building sectors.

Consumer inquiries improved as of the end of the year with more people considering to purchase their first home or investment. It is unfortunate that the RBA decision today is not likely to contribute to further improvements in the construction sector.

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