Builders’ hopes rise

Builders' hopes rise

Construction activity still declining, but at a slower pace

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 7, 2013 10:42 am AEST

Construction activity has fallen for the 38th straight month, but it's not all bad news, with the pace of decline moderating.

The Australian Industry Group -Housing Industry Association (AIG/HIA) Australian Performance of Construction Index (PCI) rose 4.6 points to 44.1 in July. A reading below 50 indicates decline, while a reading above indicates expansion.

July saw solid improvements in house building and engineering construction with both sectors declining at their slowest rate in five months, suggesting the building industry has put the worst behind it. By contrast, steeper contractions were recorded in apartment and commercial construction.

AIG/HIA says there were encouraging reports from house builders indicating an improvement in customer enquiries and a pick-up in new work in July. Yesterday's rate cut by the RBA should also see a further improvement, with the official cash rate at a record low of 2.5%.

The results should be a shot in the arm for home builders like Australand Holdings (ASX:ALZ), Stockland (ASX:SGP), AV Jennings (ASX:AVJ) and Peet Limited (ASX:PPC). The RBA will also be pleased with signs that a slew of interest rate cuts since November 2011 are finally having an impact, albeit limited, on the construction and building sector.

They still have to overcome subdued consumer sentiment, a lack of public sector building activity as governments tighten the reins and tight credit conditions. Those factors are still inhibiting Australia's move from mining-related construction, which is coming off the boil, into other sectors of the economy.

Foolish takeaway

At least the latest update is in the right direction and we could see signs of expansion over the next couple of months, which will be a welcome relief for the building sector that has seen the worst conditions in decades.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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