Australia's construction industry remained in the red in February, although the rate of contraction eased, with the Australian Industry Group Australian Performance of Construction Index (Australian PCI) in conjunction with the Housing Industry Association, up 4.4 points to 44.6 (readings below 50 indicate a contraction in activity).

A lift in new orders for engineering construction helped push the sub-sector activity up 13.3 points in February (although the sub-sector remained below 50). The rate of decline also eased in commercial construction and apartment construction. However, ongoing consumer caution was evident in the reduction in activity in the house building sub-sector (down 3.1 points).

Australian Industry Group Director Public Policy, Peter Burn, said: "The weakness in the construction sector evident since mid-2010 continued in February. Nevertheless, apart from house building which continues to disappoint, there are some signs that activity in the other sub-sectors may improve in the months ahead. The expansion in activity recorded by engineering construction and the slowdown in the pace of decline of activity in apartment and commercial construction provide some encouragement. The forward-looking new orders indicator points to a similar pattern of improvement.

"The slump in activity in the housing sub-sector in February marked the ninth consecutive month of decline. The fall in housing new orders is particularly disappointing and suggests the slump may still have some way to run. The decision last week by the Reserve Bank to keep interest rates on hold for the time being may assist in lifting confidence in this area," Dr Burn said.

Housing Industry Association Senior Economist, Andrew Harvey, said: "The continuing fall in new orders for both houses and apartments aligns with other data pointing to considerable weakness in the residential building sector, not least of all January's building approvals figures which show the largest fall in total dwelling approvals in more than eight years.

"It's increasingly clear that the 2010 interest rate hikes have battered the housing industry. What we need after so many consecutive months of contraction in residential building activity is serious reform to the supply side of the housing market. This reform necessarily includes the removal of stamp duties on new homes and much faster land release processes, without which the pressure on families from higher house prices and rents is simply going to worsen," Mr Harvey said.