After March's nosedive, Experian Business Strategies reports that construction activity is now back up and running - plus why civils are enjoying the most growth but employment prospects are falling
As predicted, March's stagnation proved to be a temporary blip and construction activity returned to growth in April, according to Experian Business Strategies' latest survey of contractors. When asked about activity levels respondents were significantly more optimistic than a month ago. The national activity index, amalgamating all regions and sectors, rose four points to 54. Although this was a marked improvement from March, it suggests activity isn't rising as quickly as in the early months of the year.
April's results also show a notable improvement in optimism about employment, with many suggesting their number of employees is likely to increase over the next three months. The national employment index increased five points to 53.
Looking forward the evidence suggests a positive outlook for the industry across the UK as a whole, with orders and tender enquiries both significantly higher than usual.
Focusing on the sectors, civil engineering once again takes pole position. At 69, its activity index suggests buoyant growth, and strong orders and tenders indices suggest this is likely to continue over the short term. The sector's weakness, however, lies in employment. Uncertainty has been prevalent in the residential and non-residential sectors in recent months but until now civil engineers remained confident. In April, the civils employment index dropped to 46, falling below 50 for the first time since May last year.
The non-residential sector continued to gain in momentum and a healthy work pipeline means an imminent end to steady growth is unlikely.
Residential respondents reported a mild improvement in April, although the activity and employment indices both stood at 50, at best suggesting the sector had stabilised. However, taking actual orders and tender enquiries as a proxy for output, the future looks brighter.
Short-term activity outlook
According to Experian Business Strategies' Leading Construction Activity Indicator, the improvement recorded in April is only the start and a further boost is imminent in May. Beyond May a steady, but healthy, expansion is expected in the industry month-on-month. The current buoyancy of orders and tender enquiry levels, with the indices standing at 64 and 60 respectively, is instrumental to this projection.
A slowdown in contractor activity over the next quarter is unlikely, with the indicator remaining firmly above 50 in the increasing zone. The indicator uses a base level of 50 - above that level shows an increase, below that level a decrease.
In April, material costs in civil engineering once again outstripped those encountered in the residential and non-residential sectors, possibly reflecting the particular impact of higher oil prices on the civil engineering sector. Seventy-six per cent of firms in the civils sector reported that material prices were more than 5% higher in April 2006 than they were in April 2005. Only 54% of residential and non-residential building firms reported increases of a similar magnitude.
At the lower end of the scale, no civils firms reported material prices rising less than 2.5% over the year, whereas 8% of residential and non-residential firms enjoyed this relatively low level of material cost inflation.
The majority (37%) of residential and non-residential companies reported price rises of between 2.6% and 5%. Unsurprisingly the average for the majority of civil engineering firms was higher, falling between 5.1% and 7.5%.
April was generally a good month for construction across the regions. Experian's regional composite indicators, incorporating a range of factors in order to give an overall view of the construction industry in each region, suggest activity increased in all but one region - Yorkshire and Humberside.
Results for the north of the country were mixed. Activity continued to increase strongly in Scotland and the North-east. The Scottish indicator climbed two points to 73, and, although it suffered a two-point fall, at 70 the North-east's indicator remained firmly in the increasing zone. While Yorkshire and Humberside's indicator suggested a small improvement from March, at 49 the indicator suggests a further marginal decline wasn't out of the question. Activity in the North-west climbed a single point to just the right side of 50.
Responses from the south of the country were more consistent, reporting increasing activity across the board. The South-west's indicator was highest after rising two points to 61. The Eastern region's indicator also climbed two points to a slightly lower 59. Activity increased at a marginally slower rate in the South-east in April than in March, but nevertheless its indicator remained high at 59.
In central regions Northern Ireland, Wales, and the East Midlands' indicators declined four points, one point and four points respectively. But essentially, all stood significantly higher than 50. The West Midlands recorded the sole rise in the central region. Its indicator gained two points, raising it to 56.
The UK index, compiled from responses from firms who operate nationally, rose one point to 72.
This an extract from the monthly Focus survey of construction activity undertaken by Experian's Business Strategies division on behalf of the European Commission as part of its suite of harmonised EU business surveys. The full survey results and further information on Experian Business Strategies' forecasts and services can be obtained by calling 0870-196 8263 or logging on to the website linked below.
The survey is conducted monthly among 800 firms throughout the UK and the analysis is broken down by size of firm, sector of the industry and region. The results are weighted to reflect the size of respondents. As well as the results published in this extract, all of the monthly topics are available by sector, region and size of firm. In addition, quarterly questions seek information on materials costs, labour costs and work in hand.