The construction activity index suffers a contraction, with many sub-sectors following suit. But the orders index continues to improve
01 / State of play
The construction activity index weakened by three points on a monthly basis in February to 49 points, returning below 50 points for the first time since November 2015. In contrast, the repair and maintenance (R&M) index had a better month (58).
The residential sub-sector’s activity index remained at 53 in February, unchanged from January. The index has stood above the no-change mark since June last year. In contrast, both the non-residential and civil engineering sub-sectors experienced contractions in their indices. The former fell two points to 49, while the latter was down by eight points to 41. The civil engineering sector has now been in contraction territory for six successive months.
Following last month’s slight decrease, the orders index improved once again. At 66 points it has now found itself above 60 points for four successive months. In contrast, tender enquiries’ expansion eased once again with a fall of two points to 54, its lowest value since June 2014.
In February, and for the second successive month, the percentage of respondents reporting no constraint on activity (24.7%) increased. The proportion of firms reporting that insufficient demand was restricting their activity fell slightly to 35.3%. Issues regarding finance and bad weather both received the same proportion of concern in February at 11.6% each, this was a slight decrease for both constraints. Labour shortage became more of a worry for our panel, with 8.3% reporting it as a limitation in February, up from 6.8% in the previous month. Material / equipment shortages may still be acting as a restriction for a small percentage of the panel (2.8%).
The employment prospects index, at 53, ticked upwards by a point in February. The index has now been above 50 points since October last year.
02 / Leading construction activity indicator
The CFR’s Leading Construction Activity Indicator experienced a decrease to 49 points in February, down three points from January. Looking forward, the indicator is expected to reach back above 50 within the next three months.
The indicator uses a base level of 50: an index value above that level suggests an increase in activity, while one below it highlights a decrease.
03 / Material costs
During February, none of non-residential and residential respondents reported falling material cost inflation. Ten per cent responded with material inflation in the range of 0% and 2.5% from our panel, down from 27% in November. Two-thirds of the respondents experienced inflation between 2.6% and 5.0% in February. Meanwhile, 6% outlined increases in labour costs between 5.1% and 7.5%. Finally, 16% had material cost inflation of 7.5% or higher.
04 / Regional perspectives
Experian’s regional composite indices 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.
Wales found itself with the largest increase in February, up five points from January to 75. After increasing three points on a monthly basis the North-west expanded to 60. There was a similar increase for East Anglia, rising three points to 63. The only remaining region to experience gains to its activity index was the West Midlands, increasing by a single point to 53. In February, Scotland held at 50 for the second consecutive month, indicating there was no change to its activity or outlook since December. The largest decrease came from the North-east (57), down four points to below its 12-month average of 61. Both the East Midlands and Northern Ireland fell by three points in February. In contrast, Yorkshire & Humberside (65) and the South-east (64) fell by two points and one point respectively.
The UK index, which looks at firms in five or more regions, experienced a gain of 10 points to 64.
This an extract from the monthly Focus survey of construction activity undertaken by Experian Economics 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 Economics’ forecasts and services can be obtained by calling 0207-746 8217 or logging on to www.experian.co.uk/economics.
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.
1 CFR’s Leading Construction Activity Indicator incorporates a range of factors to assess the construction industry’s prospects over the next quarter. The indicator is put together using information about past levels of activity, orders and tender enquiries.