Contractors in all sectors and across all regions were feeling buoyant in October. According to the Experian Business Strategies survey, activity is rising across the board – and especially in civil engineering. When it comes to the future, though, they’re a little less certain
01 — The state of play
Respondents to Experian Business Strategies’ monthly survey of UK contractors were upbeat about the state of the industry in October. The national activity index stood at 58 for the second month in a row. An index value greater than 50 suggests an increase and below 50 a decline, so the index indicates activity increased at a robust rate in October. National indicators include responses from contractors in all three sectors.
Looking to the future, respondents were mildly less optimistic in October, with the national orders and tender enquiries indices down by four and two points respectively. In a wider context, however, the index values remained significantly higher than 50, suggesting respondents were only a little less confident about the future than in September.
Civil engineering was the only sector to see any real change in October. Its activity index climbed by two points to 67, much higher than in the residential or non-residential sectors, and its tender enquiries index rose by 10 points. However, fewer civil engineering respondents expressed an intention to raise employment levels over the coming months and its employment index fell by six points.
The non-residential activity index did not change in October. At 60, the index nonetheless suggests a buoyant expansion in activity. Non-residential employment prospects improved, while orders and tender enquiries were down slightly on September.
For the residential sector, October was on a par with September. Activity, tender enquiries and employment indices all stood firm at 57, 57 and 51 respectively. The residential orders index dipped five points to 61.
02 — Leading Construction Activity Indicator
According to the Leading Activity Indicator, Experian Business Strategies’ short-term industry forecasting model, activity in the industry is likely to continue to expand over the next quarter. In October, the index stood at 58. A mild decline in the rate of growth is expected in November and a further slowdown is on the cards for January.
The slowdown is driven by weaker than expected orders growth in October and less robust tender enquiries levels.
The Leading Activity Indicator also uses a base level of 50 – above that level shows an increase, below that level a decrease.
03 — Material costs
Annual material cost inflation was reported to vary greatly across the sectors and regions in October. Although a high proportion of firms endured increases in excess of 7.6%, for some, material costs actually declined. It is important to stress, however, that drops in costs were reported by only a small minority of respondents.
The material cost burden has been significant for the majority of civil engineering respondents over the past year. More than 54% reported that prices have increased by more than 7.6%. Price rises of between 2.6% and 7.5% were reported by 40.9% of respondents. In contrast, prices declined for 4.5% of firms.
On the residential and non-residential side, material costs rose a little less strongly. Only 32.1% of respondents reported that annual increases exceeded 7.6%. More than half, 59.4%, experienced increases of between 2.6% and 7.5%. Just 3.1% of firms saw prices fall over the year to October.
04 — Regional perspective
As has been the case for the past few months, construction activity increased in every region, except for the North-west. Regional composite indicators incorporate regional activity, orders and tender enquiries from the past three months to provide a comparable measure of performance.
A four-point increase in the Welsh index took it to the top of the leaderboard. Its index reached 75 in October – its highest level for nearly a year. Only three other regions saw their composite indicator rise: Yorkshire & Humberside, Northern Ireland and the East Midlands. The East Midlands climbed five points to 64, while Northern Ireland managed a four-point increase to 73. Yorkshire & Humberside rose two points to 74.
Elsewhere in the UK, six regions saw their indicators fall but remain at a level higher than 50. The North-east, West Midlands and Scotland saw their indicators fall by five or more points to 62, 55 and 62 respectively. Falls were less severe in East Anglia, the South-east and South-west, where indicators fell by only a point or two. The North-west’s indicator failed to recover in October. It fell two points to 44 – its lowest level since November 2000 – which suggests the region’s industry contracted in October.
The UK contractors’ index incorporates responses from firms operating in more than five regions during the month. At 75 in October, the UK composite indicator was up by two points from September.
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 www.constructionfutures.co.uk
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.