AAP

Construction companies have continued to struggle against high interest rates and difficult credit conditions, going backwards for a second straight month in April, a survey says.

The Australian Industry Group-Housing Industry Association's performance of construction index (Australian PCI) dipped 5.1 index points in April, to 42.6 points.

It was the survey's worst reading since the survey began in September 2005, and below the key 50 level which separates expansion from contraction.

The activity sub-index fell 8.4 index points to 38.2 points, with construction in housing, apartments, commercial property and engineering all declining.

"Reports from firms indicated that the fall in activity reflected a further reduction in levels of incoming work, citing the negative influences of higher rates, tighter liquidity, and weaker consumer and investor confidence," the report said.

Australian Industry Group associate director of economics and research Tony Pensabene said weakness in the construction industry had intensified in April.

He said the subdued market demand had led to more competition for tenders.

"Of concern, new orders are now at their lowest level in 20 months, which means that the current weakness in activity is likely to persist during the months ahead," Mr Pensabene said in a

statement.

With less work available after the completion of existing projects, construction companies cut staff in April, the survey found.

The employment sub-index fell 9.2 index points - its largest decline in about two years - to 44.1 points.

Even with less staff, input costs continued to remain high, the report said.

The survey was based on a sample of about 120 companies.

Housing Industry Association chief economist Harley Dale said the April result was a very negative update on the Australian residential sector.

He said it showed there was a "significant deterioration in housing conditions over the first quarter of 2008".