Construction activity falters in May

Building activity slipped back into contraction in May, and there should be more weakness on the way, Ai Group says.

Australia's building activity has stepped down a gear, with more pain on the way.

The Performance of Construction Index dropped 4.1 points to 46.7 in May, slipping back below the 50-point level separating expansion from contraction.

Ai Group head of policy Peter Burn said declines in the apartment building, and commercial and engineering construction sub-sectors led the losses.

"With new orders lower across all parts of the industry in May, the immediate outlook is for further weakness," he said.

"There are, nevertheless, some emerging signs of a pick-up in non-mining related engineering construction with a growing pipeline of infrastructure projects."

Housing Industry Association chief economist Harley Dale said the construction industry had some way to go to transition away from resource-intensive projects.

Residential construction remains robust, even allowing for the sharp monthly dip in the apartment sub-index, which contracted at its steepest pace in almost three years.

"That is a timely reminder of the important support the residential construction industry continues to provide the broader domestic economy in 2016," he said.

Engineering construction turned down in May, and commercial construction remained steady in negative territory.

New orders lost ground, with the sub-index falling at its second sharpest rate since February 2015.