Australia’s Housing-Sector Slump Shows Up in Another Sickly Set of Data

(Bloomberg) -- Australia’s construction activity has slowed to the weakest in five-and-a-half years as tighter lending conditions and falling prices weigh on the nation’s housing market.

• The Australian Industry Group Performance of Construction Index fell 1.9 points to 42.6 in December, the lowest since June 2013 as the sector shrank for a fourth straight month. A reading below 50 indicates contraction.

Key Insights

• Apartment building was the weakest performing sector, falling for a ninth straight month and at the sharpest rate since mid-2012. Such projects were favored by investors in the five-year boom that peaked last year, but demand has fallen off amid tighter lending restrictions.
• All four sectors of the gauge -- house building, apartments, commercial and engineering -- contracted in December, with declines in house and apartment activity the most marked in six years. That could weigh on fourth-quarter gross domestic product and jobs data, with construction accounting for about 10 percent of both indicators.

• The Reserve Bank of Australia is closely watching construction activity, last month noting that the outstanding pipeline remained large and investment robust. Still, the rapid pace of Sydney house-price falls and worsening related indicators will likely prompt some commentary in its next interest-rate decision in February.

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