Latest date from the Australian Industry Group's Australian Performance of Construction Index (Australian PCI) in conjunction with the Housing Industry Association, has shown that developments in engineering construction mitigated effects in the national construction industry as it helped slow the rate of contraction in December. While lifting 1.6 points to 43.8, the seasonally adjusted index remained below 50 indicating a contraction in activity.

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Stronger demand from the resources sector helped the engineering construction sub-sector expand for the first time in six months. It was the only major sub-sector to record growth in December with new orders and deliveries across construction falling at a faster rate. Poor weather conditions and diminishing work from school building projects stifled activity.

Australian Industry Group Director Public Policy, Dr Peter Burn, said: "Despite a lift in engineering construction and reduced declines in activity in the residential and commercial construction sub-sectors, overall the construction industry was weaker to end a disappointing second half of 2010.

"The slower pace of decline in December is dampened by reports that new orders continue to fall in all four sub-sectors. Businesses and home buyers continue to refrain from committing to new projects with expectations of further rises in interest rates a likely factor.

"The sluggish performance over the second half of the year would have been considerably worse in the absence of the continuing public sector stimulus of activity in the industry. The industry is looking for a lift in private sector projects in the New Year to offset the ongoing withdrawal of that stimulus," Dr Burn said.

Housing Industry Association Senior Economist, Andrew Harvey, said: "Although the pace of decline has moderated, house building activity fell for a seventh consecutive month. With further falls in new orders for houses and apartments, this month's Australian PCI® report is one more piece of evidence that we are heading into a much weaker period for residential building.

"The wait for affordable land is one of the primary obstacles to new house building in greenfield areas, while the apartment market continues to struggle under tough credit conditions. A sustained period of contraction in both of these market segments will continue to lock many prospective homebuyers into the rental market for years to come," Mr Harvey said.

Australian PCI® Key Findings for December:

* The rate of contraction across the national construction industry slowed in December according to the latest Australian Industry Group Australian Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association. Despite lifting 1.6 points, the seasonally adjusted index was 43.8 for the month, below the 50 point level separating expansion from contraction.

* Engineering construction was the only sub-sector to expand in the month surging 18.9 points to 58.3. This is the first expansion in six months for the sub-sector and was largely due to strong demand from the resources sector.

* House building, apartment building and commercial construction all stayed in the red albeit contracting more slowly than in the previous month.

* New orders fell to 37.0 in December - the seventh consecutive month of decline.

* The sub-index measuring deliveries from suppliers was also weaker in December.

* Difficult market conditions, poor weather conditions and reduced school building work had negative impacts on activity.