The downturn in Australia’s construction sector is getting worse.

According to the Ai Group’s Performance of Construction Index, activity levels continue to weaken while margin pressures are intensifying.

Staffing levels were cut at the fastest pace in nearly six years. The construction sector is the third-largest employer in Australia, employing 9% of all workers.

New orders continued to dry up, pointing to the likelihood that conditions won’t improve for the foreseeable future.

The Ai Group says “there are now strong signs that adverse conditions in the broader construction industry are flowing through to sections of the services and manufacturing sectors”.

The downturn in Australia’s construction sector is getting worse with activity levels and new orders declining at a faster pace in April, while margin pressures intensified.

Employment also fell the fastest pace in years, an ominous result given the construction sector is the third-largest employer in Australia, behind healthcare and retail.

The Australian Industry Group’s (Ai Group) Performance of Construction Index (PCI) slumped to 42.6 in seasonally adjusted terms, down 3.0 points on the level reported in March.

It was the equal-lowest reading since June 2013.

The PCI measures changes in activity levels across Australia’s construction sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

So at 42.6 points, the April result suggests conditions across the sector deteriorated at the fastest pace in years.

Ai Group

“Despite growth in engineering construction, overall levels of activity in April were adversely affected by continued declines in housing activity, commercial construction and apartment building work,” the Ai Group said in a statement.

Activity levels for housing and apartment construction firms remained bleak with conditions continuing to weaken at a substantial rate.

For apartment construction, activity levels declined for a 13th consecutive month while those for home builders fell for a ninth straight month, mirroring continued weakness in other residential construction indicators such as building approvals and new home sales.

“Residential building respondents cited reduced customer enquiries as well as the negative influences of tighter lending conditions, falling prices and generally weak home buyer sentiment,” the Ai Group said.

“Reports from respondents also linked soft overall demand conditions to concerns about the slowing economy and uncertainty in the lead-up to the Federal election which had led to some hesitation among clients.”

Elsewhere, commercial construction activity also weakened for a ninth consecutive month, albeit not as a pace as severe as the downturn experienced for the residential sector.

Activity levels for engineering firms managed to buck the broader trend, improving modestly from the levels reported in March.

“This improvement was linked to stronger workflows as new projects commenced,” the Ai Group said. “A sizeable pipeline of public funded infrastructure projects and new project additions by governments, points to a more distinct recovery in activity ahead.”

Pointing to the likelihood that activity levels will remain weak across the construction sector in the months ahead, new orders continued to contract sharply for home, apartment and commercial construction firms. New work for engineering firms was stable from a month earlier.

Ai Group

Fitting with the broader themes in the April survey, the individual activity sub-indexes were a horror show.

Input costs continued to lift at a rapid pace while final selling prices declined at a faster pace, indicating an intensification in margin pressures for construction firms.

“Survey respondents continued to indicate on-going pressures from a highly competitive tendering environment and tight margins,” the Ai Group said.

“Cost pressures in the delivery of construction projects remains a concern for many constructors due to elevated energy costs and relatively high prices for commodities and imported construction materials.

“Respondents also expressed concerns about the slowdown in growth in the wider economy.”

With new work drying up and cost pressures acute, firms cut staffing levels at the fastest pace in nearly six years during the month.

“It indicates that businesses outside of infrastructure construction are responding to the on-going weakness of overall demand conditions by exerting greater caution in their labour recruitment,” the Ai Group said.

The construction sector directly employs over 1.1 million Australians, or 9% of all workers. The substantial pace of job shedding indicated by firms is yet another concerning signal on the broader pace of employment growth in the months ahead.

Along with firms cutting back staffing levels, wages growth also eased despite continued concerns over the ability to find suitably skilled staff.

Following the release of manufacturing and services PMIs from the Ai Group in recent days, the group said there’s now little doubt that the downturn in the construction sector is spilling over into other areas of the Australian economy.

“There are now strong signs that adverse conditions in the broader construction industry are flowing through to sections of the services and manufacturing sectors,” said Peter Burn, Ai Group Head of Policy.

In line with continued declines in new work, Burn isn’t optimistic that those trends will change anytime soon.

“Although engineering construction is likely to remain an area of relative strength for the industry on the back of spending on large-scale, long-term publicly funded infrastructure projects, there is little sign of any near-term improvement in overall industry conditions,” he said.

After a pronounced slowdown in the Australian economy in the second half of last year, the evidence is mounting that sluggish economic growth continued in early 2019.

Business Insider Emails & Alerts Site highlights each day to your inbox. Email Address Join

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.