Purchasing index at highest level since April 2008

The rate of contraction of the construction sector eased in May, according the an index of purchasing managers in the sector.

The CIPS / Markit Construction Purchasing Managers’ Index (PMI), where anything below 50 means contraction, registered 45.9, extending the current period of decline to 15 months Though indicative of a marked fall in activity since the previous month, the magnitude of the decline was considerably slower than in April, and the weakest in over a year.

The PMI was 38.1 in April and 30.9 in March.

All sub-sectors continued to register reduced activity. In all cases, rates of contraction were lower than one month ago, with the greatest slowdown seen in housing. This sector also recorded the weakest monthly fall in activity. Panellists reported that a stabilisation of housing market conditions had led to a record rise in the respective housing activity index.

Anecdotal evidence pointed to the ongoing stabilisation of operating conditions, although the business climate remained tough overall.

The continuation of declining workloads led to a further down-sizing of construction employment levels. Overall, jobs were lost for a twelfth successive month and, despite easing to its weakest since last October, the rate of job shedding remained severe. Companies commented that redundancy programmes had been implemented, and that leavers were not being replaced.

Subcontractor usage was also reduced in May, albeit to only a modest extent. Nonetheless, availability continued to rise steeply, while rates charged by subcontractors fell at a considerable pace in line with strong competitive pressures.

Finally, confidence amongst UK constructors jumped considerably during May to a 21-month peak. Companies linked positive expectations to recent improvements in market sentiment, which is forecast to underpin growth of demand and activity in the next year.

Roy Ayliffe, director at the Chartered Institute of Purchasing & Supply, said: “After appearing to be in freefall in February, we are starting to see the construction economy show some signs of life and steer itself back onto the road of recovery. Latest PMI data showed the slowest rate of contraction since April 2008, with murmurs of a possible upturn in house-building activity.

“This data suggests that, while the construction sector may be out of the intensive care unit, it's still some way from making a full return to health and there is always danger of a relapse.

“Firms are still operating in an extremely tough business climate. Purchasing managers voiced concern as new contracts remained scarce and competition is rife, leading to increasingly competitive quotations in a bid to secure business. More unfortunately, we’re still seeing staff culled at a severe rate in an effort to maintain tight cost control.”