Activity in the construction sector contracted for the eighth consecutive month as the dire economic outlook Has led to fewer projects being developed, a survey has found.

The Australian Industry Group-Housing Industry Association performance of construction index (PCI) rose 4.6 index points to 36.4 points in October.

The index rose from its low of 31.8 points in September, the weakest reading since the survey began in September 2005.

For the eighth month in a row, the index was below the 50 level, which separates expansion from contraction.

“Construction firms linked the latest decline to the on-going financial crisis and deteriorating economic sentiment which had contributed to a scaling down of new project work, fewer opportunities to tender and continued delays in development activity,” the survey released today found.

Australian Industry Group (Ai Group) Associate Director Economics and Research Tony Pensabene said the report confirmed that tighter credit, weak demand and the falling outlook for the economy were hitting the construction industry.

“Although the latest data suggests that the rate of industry contraction eased slightly in October, conditions overall remain particularly subdued,” Mr Pensabene said.

“This weakness was most noticeable in the house building sector where activity contracted significantly.”

Against the continued weakness in the housing sector, commercial construction activity improved, although the pace of growth was marginal, the report said.

The report noted both activity and new orders registered further substantial falls in October, albeit at rates slower than the previous month.

“This led to further cutbacks in employment and supplier deliveries,” it said.

Housing Industry Association chief economist Harley Dale said a weakening in house building acclivity had intensified.

Recent interest rate cuts along with the federal government’s boost to the first home owners grant in early October would boost the housing sectors.

In October, the Reserve Bank of Australia (RBA) slashed its key cash rate by 100 basis points and followed that with another 75 basis points easing this week.

The overnight cash rate is now 5.25 per cent.

“The onus is firmly on state and local governments to get their act together on appropriate release of affordable land and reduction in planning delays to ensure the opportunity for a recovery in new home building in 2009 is not constrained by unnecessary supply side obstacles,” Mr Dale said.

“Such constraint would be at a cost to the Australian economy as a whole.”

AAP