The infrastructure sector’s revival is likely to continue, whereas it has been a quiet period for the residential and non-residential sectors. According to the Experian Business Strategies survey overall growth will be moderate, but it will remain robust
01 The state of play
According to the official statistics from the DTI, the infrastructure sector had a good third quarter in 2006, rising 4% compared with the second quarter. And if November’s survey results are anything to go by, its revival is going to continue. The civil engineering activity index shot up to 77, a level not seen since January, and much higher than activity in either the residential or the non-residential sector. In addition, civil engineering respondents reported that actual orders and tender enquiries were at a record high. Given that activity is up, and is set to rise further, it is unsurprising that firms expect to increase their employment levels over the next few months.
By contrast, it was a relatively quiet month for the residential and non-residential sectors. At 57 the residential activity index was unchanged from October, suggesting that activity increased moderately for a second month. A further acceleration in the rate of growth is possible given that orders, tender enquiries and employment indicators strengthened a little in November. Prospects are less certain for the non-residential sector, although of late its performance has been strong. The non-residential activity index fell two points in November to 58; orders dropped one point, but remain relatively high. However, respondents continued to receive many enquiries, and job prospects are good.
Civil engineering boosted construction across the board. In November the overall activity index climbed four points to 62, orders were up three points to 70, tender enquiries went up a seven points to 65 and employment prospects rose seven points to 56.
02 Leading Construction Activity Indicator
Experian Business Strategies’ Leading Construction Activity Indicator suggests the industry can look forward to further growth in the next few months. The chart, left, shows the UK construction industry has been expanding since March, when the indicator dropped to 50. The indicator reached a particularly high level in November, although this is not expected to be sustained. While the rate of growth is expected to be moderate, it should remain fairly robust.
The Leading Construction Activity Indicator uses a base level of 50 – above that level shows an increase and below it a decrease.
03 Labour costs
Labour costs have increased moderately for many panellists over the past year, especially those in the building sectors. For 63% of residential and non-residential firms, annual labour cost inflation was running at 5% or less in November. For civil engineering firms, however, labour cost increases tended to be higher. Only half of civil engineering respondents reported labour cost inflation of 5% or less.
Inward migration from Eastern Europe is one possible explanation for this difference. Health and safety concerns and language barriers mean there is a greater probability of immigrant labour being employed on the building, rather than civil engineering side, helping to keep labour cost inflation at a relatively low level for some building firms.
For a smaller proportion of firms, labour cost increases were significantly greater. For 27% of civil engineering respondents, annual labour costs increased by more than 7.6%. Only 18% of residential and non-residential firms reported rises of this magnitude.
04 Regional perspective
The regional composite indicators bring together respondents’ thoughts on activity, orders and tender enquiries over the past three months. Generally, these paint a rosy picture for November, when the indicators exceeded 50, and hence suggested the industry expanded in all regions except the North-wdest.
Varying degrees of buoyancy were seen across the regions. A four-point increase in Northern Ireland’s composite index put the region in poll position. At 77 Northern Ireland’s indicator reached its highest level this decade. Wales followed very closely in second place. A one-point increase pushed its index to 76. Increases were also seen in the East Midlands, the South-west and Scotland.
Yorkshire and Humberside and the Eastern region’s indicators dropped seven points. However, at 67 and 64 respectively, they remained at a relatively high level. The West Midlands’ indicator slipped marginally by a point to 54.
Composite indicators for the North-east and the South-east did not change from October and stood firm at 62 and 57 respectively.
Contractors in the North-west have been pessimistic about the industry since May. Responses to November's survey suggest that the region’s industry contracted again, although its indicator did manage to climb three points to 47.
The UK contractors’ index stood at 75 for the second month in a row.
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.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.