Construction activity growth fell markedly in March - but don't worry, says Experian Business Strategies, it'll get back on track soon. Plus this quarter the spotlight is on work-in-hand levels
Growth in construction activity slowed considerably in March and was virtually unchanged from February according to Experian Business Strategies' latest contractor survey - ending an eight-month run of strong growth.
The national activity index, incorporating responses from residential, non-residential and civil engineering firms, fell six points to just 51.
Employment is most likely to suffer from the current state of inertia as firms delay replacing workers and expanding their workforces. Having teetered above 50 for the past five months, the employment index dropped to 49 in March, falling below 50 for the first time in nearly a year. Forward-looking indicators, such as orders and tender enquiries, suggest a brighter future. At 63, the orders index suggests firms' order books were healthier than usual in March. Similarly, respondents received a relatively high number of tender enquiries and this index rose two points to 61.
Little has changed in each sector's relative performance over the past few months, with residential being the weakest and civils marginally the strongest (see graphic: National monthly snapshot). In March, residential deteriorated markedly, with activity and employment indices both dropping below
50 to suggest a mild contraction. It is possible this was a temporary blip but, given firms' comparatively subdued expectations about order books and tender enquiries, the effects of the slowdown may be more prolonged.
Elsewhere, the non-residential and civils activity indices both fell from February but crucially stayed in the increasing zone. Respondents were optimistic about order levels and tender enquiries.
Short-term activity outlook
According to Experian Business Strategies' Leading Construction Activity Indicator (above), March's slowdown in activity growth is forecast to be short-lived. With the national orders books and tender enquiries indices standing at 63 and 61 respectively, a return to more robust growth is forecast from April. After falling to 51 in March, the indicator is likely to rise month-on-month in April and May to 55, before stabilising at this level in June.
Essentially a slowdown in contractor activity over the next quarter cannot foresee and the indicator will remain 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.
(See graphic: Short-term activity outlook)
Work in hand
In March less than a quarter of residential and non-residential respondents had more than six months' work in hand. The majority of non-residential firms, nearly 44%, held between three and six months. Unsurprisingly, given the sector's current slowdown, residential respondents mainly reported less than three months' work in hand. In the civil engineering sector, 46% of firms had up to three months' work in hand, leaving 55% with more than three months.
Generally work-in-hand levels have declined since the last quarterly report in December, when the majority of respondents in all three sectors reported work-in-hand levels of between three and six months. However, a greater number of firms had more than six months' work in hand in March than in December.
(See graphic: Work in hand)
March's regional results paint a mixed picture, particularly in the north of the country. Six regions' composite indicators rose in March, five fell and one remained unchanged. With the exception of Yorkshire and Humberside, all regions recorded indices of 50 or more. The regional composite indicators incorporate a range of factors in order to give an overall view of the construction industry in each region.
In March, both the strongest and weakest regions were located in the north. A nine-point rise pushed the North-east's index to 72, its highest level in more than a year, and Scotland's index climbed one point to 71. Conversely, a two-point fall lowered Yorkshire and Humberside's index to less than 50 for the third time in four months, contrasting sharply with all other regions.
Elsewhere results were more consistent. In both the South-east and South-west, construction activity rose robustly, with indices at 61 and 59 respectively. However, the South-east's index was unchanged from February whereas the South-west's index fell two points. The Eastern region's index climbed three points to 55.
At 67 and 66 respectively, activity was also buoyant in the East Midlands and Wales, although less so than in February when both the indices stood at 72. Indices climbed in Northern Ireland and the West Midlands. Northern Ireland's index rose five point to 68 and the West Midlands increased a single point to 54.
The overall UK index, compiled from responses from companies that operate nationally, rose six points to 71.
(See graphic: Regional perspective)
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.