The tracker: Bottoming out?

01 / The state of play

According to Experian Business Strategies’ monthly survey, the conditions in the construction industry remained downbeat in February, even though the seasonally adjusted activity indicator rose three points to 35 from the previous month. This returned the indicator to a level last seen in November 2008. The residential sector’s activity index was the only one to fall, declining two points to 31. By contrast, the civil engineering index improved in February, rising 11 points to reach 37, and the non-residential index reached 39, up seven points from the previous month. Since all three activity indices remained below 50, this was an indication of declines in activity across the sectors.

Following a slight dip in January, the orders index rose four points to stand at 43 in February. The tender enquiries index increased by the same amount to reach 44, the highest reading since June 2008. The gains are indicative of order books and tender enquiries being above the level seen in January but nonetheless still show them to be below normal levels.

The index for short-term tender prices in the industry remained steady in February. At 29, a record low, firms still intend to reduce prices in order to gain competitive advantage over others. The dire expectations of survey participants regarding employment eased slightly as the index rose by four points to 27. However, this does not change the fact that firms intend to keep reducing staff over the next three months.

02 / Leading construction activity indicator

The Leading Construction Activity Indicator suggests that construction activity will continue to contract over the next three months. After March, it is expected that the indicator will increase by one point in two months, reaching 36 in May. This uses a base level of 50 – an figure above that level indicates an increase in activity, below that a decrease.

03 / Material costs

In February, the number of civil engineers reporting year-on-year falls in material costs was slightly greater than in the building sectors. This is significantly different from the survey results three months ago, where none of the engineering firms reported falls. The result may be explained by declining oil prices, as civil engineering uses more oil-derived products.

At the other end of the spectrum, 21% of those in civil engineering reported increases in material costs of greater than 7.6%, compared to 27% of those in the building sectors. Thirty-four per cent of residential and non-residential firms said costs had risen by between 2.6% and 5% in comparison to 43% of civil engineering firms. Only 8% of building firms put material cost inflation below 2.5%; no civil engineering firms found this to be the case.

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.

Indicators for all of the regions remained below 50 in February, as has been the case in the previous two months. With the exception of north-west England which dropped one point to reach 27, and Scotland (43), which remained unchanged, from the previous month, all the regions showed increased scores.

Northern Ireland led the charge in terms of magnitude with a rise of seven points to reach 35. Wales followed, posting an increase of four to 45. The East Midlands (38), the West Midlands (41) and the North (41) all increased three points.

The regions with the smallest increases in their indices were the South-west, Yorkshire & Humberside and East Anglia; they all rose one point. The South-west posted its first monthly increase since July 2008.

In contrast, the UK indicator, comprising of responses from firms operating in more than five regions, fell by one point to 39 in February. This may be due to the ability of regional firms to gain competitive advantage by exploiting their localised knowledge to win work.