Australia Construction Index Held Near Two-Year Low in July

Australia’s building industry shrank in July for a 14th consecutive month as consumer caution and concern about higher borrowing costs weighed on house construction, a private survey showed.

The construction performance index was 36.1 from 35.8 in June, which was the lowest level since March 2009, according to a survey by the Australian Industry Group and the Housing Industry Association released in Sydney today. A reading below 50 indicates the industry is contracting.

Reserve Bank of Australia Governor Glenn Stevens held the benchmark interest rate at 4.75 percent this week, after boosting it seven times from October 2009 to November. A report in June showed Australia’s household savings rate rose to 11.5 percent in the first quarter, the highest level since 2009, as consumers exhibit greater restraint.

“Consumer caution and the fear of further interest-rate rises are dampening activity in residential construction,” said Peter Burn, director of public policy at the Australian Industry Group. “The commercial construction sub-sector is suffering as low levels of private sector activity are not making up for the withdrawal of government-backed projects. The decline in new orders gives little reason for the industry to think that a turnaround is in the wings.”

The government has been scaling back fiscal stimulus measures, and Treasurer Wayne Swan said in May it will end 23 years of spending growth to help return to a budget surplus.

A gauge of housing dropped 5.6 points to 28.5 last month and new orders slid 0.6 points to 31.6, the report showed. Engineering work dropped 0.4 point to 38.8 while commercial work rose 3.9 points to 37.4, it showed.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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