Construction industry grows during October, Stevens says rates will rise gradually: Economy Roundup

The construction industry has continued to grow during October, but at a slower pace as the recovery in the apartment building sector has been impacted by a decline in new orders, according to a new survey.

A survey of 200 firms by the Australian Industry Group and the Housing Industry Association has found overall construction activity rose just 0.1 point to 50.9, just over the 50-point level separating expansion from contraction.

Ai Group associate director public policy, Peter Burn, said in a statement the survey gives some encouraging signs for the industry ahead.

“Nevertheless, a more marked fall in commercial construction and a fifth consecutive month of decline in work undertaken on engineering shows that the pace of growth remains subdued and patchy,” Burn added.

“This reflects the on-going tightness of credit conditions, fewer new orders and excess capacity.”

Glenn Stevens says rates to rise “gradually”

Meanwhile, Reserve Bank of Australia governor Glenn Stevens has said in a speech the economy is recovering but more needs to be done to boost housing supplies.

“After a big recession, it usually takes some years for well-above-trend growth in demand to use up the spare capacity created by the recession,” Stevens said. “This time that process will not take as long.”

But Stevens also said the outlook for the economy is positive, with all indicators pointing towards growth during the next year.

“On the best reading of all the available information, this appears to have been one of the mildest downturns we have had,” he said. “Furthermore, it is likely that recovery is already under way.”

The comments come as the Reserve Bank of Australia released its quarterly monetary police statement this morning, in which it said interest rates will rise “gradually” as the economy recovers.

“The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected,” the RBA said in the statement on Friday, echoing similar recent comments.

“The board will continue to monitor developments closely and set monetary policy so as to promote sustainable growth in the Australian economy and keep inflation consistent with the medium-term target.”

Shares open higher after Wall Street gains

The Australian sharemarket has opened over 1% higher today after good results from the US, where stocks rose on good economic data and corporate results from Cisco Systems.

The benchmark S&P/ASX200 index was up 59.2 points or 1.31% to 4567.2 at 12.00 AEST. The Australian dollar also rose higher to US91c.

Commonwealth Bank shares rose 1.5% to $52.62, while ANZ shares also increased 0.5% to $22.19. NAB gained 1.2% to $28.50, while Westpac also increased 1.7% to $26.33.

Airline giant Qantas has said it will not ground any planes and no planes will be disrupted as a result of a strike taken by the company’s engineers.

The Association of Professional Engineers, Scientists and Managers has been involved in a debate with the company regarding work conditions and pay, but spokeswoman Olivia Wirth has said the company will continue to negotiate despite industrial action.

“Qantas has not walked away from the negotiating table,” she said. “They’re asking for 30% pay increase over three years, which is unreasonable. That includes a 21% increase in the first year.”

Bank of England increases bond-buying program

Overseas, the Bank of England has increased its bond-buying program to $363 billion, in a move some analysts believe to be the last big stimulus measure aimed at shoring up the troubled economy.

“We suspect that this will be the final extension to the QE programme unless the economy suffers a major relapse in 2010,” Howard Archer, economist at IHS Global Insight, told Reuters. The decision came as the bank decided to leave interest rates unchanged at a record 0.5%.

In the US, Wall Street recorded gains due to good economic data and corporate results. New figures from the Labor Department revealed productivity increased by 9.5% during the third quarter, the fastest increase in six years, while claims for unemployment benefits fell to a lower-than-expected 512,000.

The Dow Jones Industrial Average gained 203.82 points, or 2.08% to 10,005.96, while the Standard & Poor’s 500 Index moved up 20.13 points or 1.92% to 1066.63.