The improved weather conditions in August perked up contractors across the country, although demand has yet to live up to their enthusiasm. Experian Business Strategies reports
01 The state of play
All in all, Experian Business Strategies’ latest contractor survey suggests that the construction industry performed strongly in August. Better weather had a big effect and bad weather was only reported as a constraining factor by 3% of respondents, compared with 14% in July.
Insufficient demand was once again the most common problem contractors encountered, but the proportion citing it as a factor was relatively low. The overall activity index stood at 59, the orders index at 73 and the tender enquiries index at 61 – all reasonably high, given that an index value of more than 50 reflects an increase.
The overall strength of the growth in activity was owed entirely to the buoyancy of the residential and non-residential sectors, and the indices stood at 55 and 58 respectively, suggesting that many contractors enjoyed a robust expansion in their levels of activity during the month. Civil engineering activity, on the other hand, faired less well, and an index value of 50 indicating that activity neither increased nor decreased during the month.
Better prospects are, however, on the horizon and forward-looking indicators are positive for all three sectors. Strong order and tender enquiries indices across the board suggest a better outlook for activity in the civil engineering sector and that the current strength of the residential and
non-residential sectors should continue into the future. Prospects for future employment in the industry could be the only weakness and somewhat surprisingly prospects are weakest for residential employment.
02 Leading construction activity indicator
(See table below)
03 Material costs
Most responding firms in August reported that material prices were rising at a moderate annual rate. Material cost inflation, ranging from 2.6% to 5%, was reported by 47% of building (residential and non-residential) firms. The proportion of civil engineering firms reporting material costs increases in this bracket was considerably higher at 67%. Twenty per cent of building firms reported annual material price inflation of between 5.1% and 7.5%, as did 24% of civil engineering firms, but for 27% of building firms the material cost inflation burden was much more significant, running at more than 7.6%. Only 10% of civil engineering firms suffered an increase of this magnitude.
Compared with three months ago, when respondents last reported their material costs, inflation has moderated, especially in civil engineering. In May, more than half of civil engineering respondents reported material cost inflation running at more than 5%. For firms operating in the building sector the change has been less marked.
04 Regional perspective
Experian’s 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. They suggest that construction is performing robustly across all of the regions.
Particularly significant was the recovery in Yorkshire & Humberside. After several subdued months, when activity most probably contracted in the region, this region’s indicator rose by two points to 52, which is its highest level since April 2007.
Six other regions’ composite indicators rose in August, and increases of just two points were particularly common. In addition to Yorkshire & Humberside, the North-west, Wales and Scotland’s indicators climbed two points.
The strongest increase occurred in the West Midlands. At 61, the indicator stood at its highest level since August 2006, which was four points higher than in July.
Northern Ireland’s indicator again took a seven point tumble but as it started from such a high level that it remained at the top of the league table in spite of this. Declines were also recorded in the South-east and South-west. The Eastern index stood firm at 67 for the second consecutive month.
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 0207-7468 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.