I have noted from conversations I have had recently a more confident air about the future within construction this side of the New Year.
And the latest Markit/CIPS survey seems to add to this anecdotal evidence with its finding that confidence in the sector in January improved “to the second-strongest degree in the survey history to reach the highest since May 2011”.
I’m not sure what that actually means in numbers but it sounds like a lot of improvement.
This is despite the fact that the normally upbeat survey showed a slowdown in construction growth, with declines in housing and civil engineering work, and despite the sharp rise in input costs in January.
It seems consumers are a bit more confident too. The GfK NOP survey put confidence in January at its highest level since June last year.
This all seems rather puzzling. The economy slid below flat last quarter and construction appears set for a second full-blown recession, as the graph of recent forecasts shows.
The commentary to the GfK NOP survey had a worthwhile observation which may provide some guidance.
“The Index is sometimes subject to non-economic influences, and the uplift may simply reflect a hangover from the Christmas feelgood factor. If this is true, we should be on the look-out over the next few months for a possible bounce from the Olympics as well. However, it’s worth remembering that, while the Royal Wedding last April triggered a sharp rise in consumer confidence, it dissipated completely within a few months.”
I wrote about the Experian and Construction Products Association forecasts last month and explained that, while the pattern shown reveals a recession and recovery over the next couple of years, there were growing risks on the downside.
This in large part explains the rather gloomy picture painted by the Hewes & Associates Forecast shown in this latest graph of the forecasts.
Hewes tends to embrace more of the downside risks within its forecast than the others.
As we can see the view taken in Leading Edge’s latest forecast is closer to the view taken by Experian and Construction Products Association.
The common theme is that the decline in the public sector has taken longer to feed through than had been expected. But now that it is in decline, unfortunately the private sector is showing less vigour than was hoped.
The net result is that the forecasters have penned in a deeper recession, albeit from a higher base.
So is the optimism based on the view that things are not as bad as they might have been, or do companies genuinely believe things are on the up. That I don’t know.
I would hope that the optimism within construction – an industry that normally survives on derived demand – is based more on the opportunities that can be created rather than the opportunities the market will provide without a prompt.
One thought I will make is that, as I have shown before, the Markit/CIPS survey has a history of finding the industry seriously more optimistic than the facts would seem to justify.
But to finish on an upbeat note, the optimists could be proven right. It is just that the chances appear slim.