Perhaps unsurprisingly, growth in construction activity slowed down considerably during December, particularly in civil engineering. But, as we approach spring, the Experian Business Strategies survey has detected the first signs of new growth
01 The state of play
Responses to December’s survey were somewhat downbeat compared with November. The overall activity index fell by nine points, the tender enquiries index by five points, the employment prospects index by two points and the orders index by one point. In short, all the major industry indicators declined, yet the absolute value of all these indicators remained firmly above 50, suggesting that, overall, the industry continued to grow at a strong rate. Many firms reported a positive forecast, with a healthy number of enquiries and orders in the pipeline.
Civil engineers suffered the biggest turnaround, although November was an exceptionally strong month. The civil engineering activity index declined substantially by 29 points to 52 – its lowest level since last May. Its employment prospects index dropped 10 points. Future prospects did remain positive, if slightly less solid than in our last survey. Tender enquiries dropped 10 points and orders fell four, to 71 and 76 respectively.
In the residential and non-residential sectors, the difference between November and December was less marked. However, the notable change was in their relative performances. The non-residential activity index has been consistently higher than the residential index since early 2006. In December, however, the tables turned and residential activity once again topped the league tables. Looking further forward, the non-residential sector is likely to regain the lead, both in terms of likely future activity and employment.
02 Leading construction activity indicator
According to the leading activity indicator, Experian Business Strategies’ short-term industry forecasting model, the industry is set to get off to a flying start in 2007. After falling nine points in December, the indicator predicts robust but steady growth over the coming quarter.
The measure is forecast to increase to 57 in January and to stand firm at that level until March. This optimistic outlook is based on the current strength of order levels and tender enquiries.
The leading activity indicator also uses a base level of 50 – above that level shows an increase, below that level a decrease.
03 Work in hand
Responses were mixed regarding work in hand in December. While there was a significant improvement for some, for others levels deteriorated. Overall, more firms reported they had six months’ work in hand than in September, but more respondents also had under three months.
In all three sectors most respondents reported work in hand of between three and six months. Work in hand levels reported by civil engineering firms were weak compared with the residential and non-residential sectors, and a significant proportion – 36% – said levels had fallen to less than three months. However, for some civil engineering firms the outlook appears more stable, with 21% of firms reporting over six months work in hand.
Responses were similar from the residential and non-residential sectors, with over six months being reported by 20% and 19% respectively and under three months by 33% and 31% of firms.
04 Regional perspective
Across many regions growth in construction activity was more subdued in December. The composite indicators – which are compiled from regional activity, orders and tender enquiries from the past three months – fell in seven out of 11 regions. This contrasted with the previous few months when industry growth accelerated in most regions.
Northern Ireland’s indicator suffered the largest fall, but it started from a strong position it remained relatively high. However, Northern Ireland was unable to hold on to the top spot – Wales took that honour, despite falling five points.
It wasn’t all doom and gloom. The composite indicators for all but the North-west exceeded 50, suggesting the industry continued to expand.
And the East Midlands and the South-east bucked the declining trend. Their composite indicators actually rose, albeit by a single point.
Indicators were unchanged from November in two regions. The South-west stood firm at 63, while the North-west remained below 50 for the eight month in a row.
The UK contractors’ index incorporates responses from firms operating in more than five regions during the month. At 71 in December, the UK composite indicator fell four points from the previous month.
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This is 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.
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