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Creation Date: Tue, 07 Dec 2010 GMT

Construction sector shrinks again as federal stimulus winds up

THE construction sector continued to struggle in November due to weakness in new orders, posting its sixth consecutive month of contraction.
The Australian Industry Group Australian Performance of Construction Index fell 1.8 points to 42.2 in November from October. An index reading below 50 points indicates contracting activity.

The softness in construction comes as the federal government winds up stimulus spending targeting infrastructure and projects in schools. The data shows private construction spending has yet to step up and offset the decline in government spending, the report said.

"The continuing weakness in the construction industry reinforces other reports about the patchiness of economic activity in the face of higher interest rates and the withdrawal of government stimulus measures," said Peter Burn, AIG director of public policy.

Weakness continues across the construction sector but is particularly evident in the residential housing and apartment sub-sectors, Mr Burn said. Expectations of further interest rate rises are having a significant impact on the sector.

The Reserve Bank of Australia has raised interest rates seven times since October 2009, leading the world in the removal of monetary stimulus in the period since the global financial crisis.

The downturn in construction comes as the economy more broadly encounters a soft patch. Data last week showed the economy grew at its slowest pace in two years, while retail sales also spiralled lower.

Mr Burn said the data is pointing to similar weakness through the final months of the year.

James Glynn, 'Dow Jones Newswires, 7 November 2010