Construction is at a three-and-a-half-year high thanks to the continuing recovery of the housing sector.
The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (PCI) rose 3.9 points to 47.6 in September - the highest reading since May 2010, although still below the 50-point level separating expansion from contraction.
An index reading below 50 indicates activity in the sector is falling and the lower the reading, the greater the speed of the decline.
Construction was boosted by the housing and apartment sectors, with apartment building increasing by 20.0 points to 57.7 - after 40 months of decline - driven mainly by stronger investor activity, the report said.
The report said businesses were reporting increased levels of incoming work and new tender opportunities while house builders said they'd seen an increase in enquiries and an improvement in buyer sentiment.
But despite the signs of improvement, employment levels continued to decline, suggesting construction businesses are still cautious about hiring workers.
"The construction sector is closer to stabilisation than at any time since mid-2010," Australian Industry Group chief economist Julie Toth said.
"The housing and apartment sectors are driving the industry's improved performance on the back of lower interest rates and a lift in buyer sentiment.
"Despite these encouraging trends, it is clear that the industry continues to face a tough operating environment with impediments such as tight credit conditions and a lack of public sector building activity continuing to weigh on overall activity."
Ms Toth said the figures presented grounds for cautious optimism that the improving trend could be sustained.
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