The news is pretty bad for January, with activity lower than it’s ever been before – as are tender price inflation, workload in the south of England and employment, says Experian Business Strategies
01 / The state of play
Activity in the construction industry continued to decline, according to the Experian Business Strategies’ monthly survey, with the activity index falling by one point to 32. This took the index to the lowest point in the history of the survey.
When broken down into individual sectors, this trend was visible in both the non-residential and civil engineering activity indicators, each of which fell. Conversely, the residential sector activity index improved one point, but as it remained below 50, that was simply an indication of a slowdown in the rate of decline.
The index for orders in January fell by two points to 39, a level previously seen in December 1991. This was an indication that firms in the industry considered their level of orders to be below normal. The tender enquiries index also reached 39, down one point.
The tender price index remained steady at 29, the previous month’s record low. This indicated that firms intended to keep reducing prices in order to win contracts in an increasingly competitive market.
Employment prospects for those in the industry also remain poor, as firms highlighted their intentions to reduce staff numbers over the next three months. This was reflected in the respective index reaching an all-time low in January.
02 / Leading construction activity indicator
Experian Business Strategies’ Leading Construction Activity Indicator predicts that work will continue to decline for the next three months, albeit at a slower rate than seen in the recent past. After stabilising at 34 in the first quarter, the index is expected to edge upwards to 35 in April.
The Leading Activity Indicator uses a base level of 50; an index above that level indicates an increase in activity, below that a decrease.
03 / Labour costs
Sixty-four per cent of civil engineering firms reported that their labour costs had decreased compared with a year earlier. This is in contrast with three months ago, when none of the firms surveyed said labour costs had fallen. However, 36% of firms in January said labour costs had risen by between 2.6% and 5%.
Whereas three months ago none of the residential and non-residential firms reported a drop in labour costs, 44% reported it to be the case in January. About 34% of those active in the two sectors experienced labour cost inflation of between 2.6% and 5%. Meanwhile, 9% of building respondents said costs had increased by more than 7.5%, compared with 20% three months ago.
04 / Regional perspective
As was the case in December last year, the composite indicators for all of the regions was below 50 in January. The East and West Midlands were the only regions not to have seen a change in their indices, remaining on 35 and 39 respectively.
The South-east and South-west fell two points, giving respective indices of 36 and 34, both of them all-time lows. The North-east suffered the largest index decrease, down by six points to 39, another historical low. Meanwhile, the North-west’s indicator edged downwards by one point, making the region the worst performing, along with Northern Ireland – which, by contrast, rose four points.
Wales experienced the largest increase in its indicator, up by seven points to 41, and Yorkshire and Humberside and East Anglia reached 38 and 46 respectively. Both regions increased by three points from December’s level. Scotland’s index rose two points to 43.
The UK indicator, comprising responses from firms operating in more than five regions, fell by four points to 40 in January.
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.
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.