Just when we thought we could bask in a few rays of sunlight, an icy wind swept through August with most indicators showing the rate of decline speeding up again, says Experian Business Strategies
01 / The state of play
Most of the indicators have shown some improvement over the past three months, in the sense that they got worse less quickly. Alas the rate of decline increased slightly in August. Although this could simply be a blip, it may also be the first sign of a “double dip” recession in the construction industry.
The activity index for the residential sector fell back below the 50 mark in August to 48, and the non-residential one declined by two points to 42. The civil engineering sector had the largest fall, contracting nine points to 34. These declines were attributed to several factors, although insufficient demand was cited as the main obstacle. Obtaining finance also become much more of a problem when compared with the past couple of months.
Tender enquiries were also reported to have fallen in August as the index went from 53 in July (indicating a higher level of enquiries month-on-month) to 42. Orders continued to look weak as the index edged down by a point to 42, indicating below-normal order books for the time of year.
The index for tender prices remained below 50 for the 12th consecutive month in August, suggesting that firms are continuing to lower tender prices to win contracts. However it also rose by four points to 41: the fourth successive rise.
Employment prospects for those in the industry also remain poor as the index stayed unchanged at 37 for the third consecutive month in August. This was suggestive of firms' intentions to continue to reduce their workforces over the next three months.
02 / Leading construction activity indicator
Contruction Forecasting and Research’s leading construction activity indicator shows that work will continue to contract over the coming two months but at a slightly faster rate than seen in the recent past. The leading indicator is expected to remain unchanged at 44 in November from the previous month’s level.
The leading activity indicator uses a base level of 50 – a score above that level indicates an increase in activity, below that level a decrease.
(See corresponding graphs below)
03 / Material costs
The number of residential and non-residential firms reporting a fall in material costs decreased from about 22% three months ago to almost 15% in August. For the same month, more than 39% of firms in the two building sectors experienced materials cost inflation of between 2.6% and 5%, while 7% reported a rise of between 5.1% and 7.5%. Twenty-nine per cent of respondents said costs had increased by more than 7.6%, unchanged from three months, but only 10% said inflation had been less than 2.5%.
On the civil engineering side, 83% of firms experienced an increase in material costs of between 2.6% and 5%, compared with 41% answering the same way three months ago. The remaining respondents reported a rise of more than 7.6%.
(See corresponding graph below)
04 / Regional perspective
Experian Business Strategies’ regional composite indicators incorporate current activity levels, the state of order books and the number of tender enquiries received by contractors to provide a measure of the relative strength of each regional industry.
In August, the North-west and Wales indices saw increases of 3 points each to take them to 40 and 51, respectively. East Midlands’ index also surpassed the 50 mark, although the rise was a slightly greater one of 4 points. The North saw the smallest points gain of just 1 to take the index to 48.
Northern Ireland saw its index fall to the lowest point in August since April of this year as it reached 42. This was a month-on-month decrease of 6 points, the largest fall of any region. Meanwhile, East Anglia and the South-west experienced falls of 3 points each to take their respective indices to 54 and 42.
Yorkshire & Humberside's index remained below the 50 mark for the 17th consecutive month in August as it edged down by a point to 41, while the Scottish index saw a slightly larger drop of 2 points to take it to 45.
The UK indicator, which includes firms working in more than five regions, was 3 points higher at 48 in August. It has broadly been rising since February of this year.
(See corresponding graph below)
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 0870-1968 263 or logging on to www.business-strategies.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.