At the start of the year the construction activity index is up six points on last month. This represents seventeen months of continuous positive activity. Experian Economics reports
01/ State of play
Experian’s Experian’s construction activity index stood at 57 in January, up six points on the previous month, which has been revised up from 50 to 51 since last month’s report. This is the seventeenth straight month of positive activity. Looking at activity by sector, both the residential and non-residential sectors saw their indices increase, both staying within the band of positive activity. Civil engineering, however, saw its index tick downwards by one point to 61, although activity prospects remain well above average. Last month the orders index dropped five points to reach 59, although the index remained nine points above its corresponding value for the previous year.
The percentage of respondents indicating that they were experiencing no constraints on activity decreased to 18% in January, the lowest since March last year. Meanwhile the proportion indicating that bad weather was impeding activity soared to 24%, the highest proportion recorded in over three years, reflecting the recent spate of exceptional weather. The percentage of respondents indicating that insufficient demand was restricting activity decreased to 33%, the lowest proportion for three years. Labour remains of negligible concern, as only 6% of respondents indicated it was a significant factor. Material/equipment shortages became more of a concern as 5% of respondents felt it was affecting activity levels, which is the highest proportion on our records, although weather issues will play into this, with direct disruption to distribution links. The proportion indicating that financial concerns were hampering activity decreased to 12%, representing the lowest level since July 2013.
Following three months of bearish employment expectations, January saw a trend reversal, with the index rising above the 50-mark (52), suggesting growing positivity towards employment prospects in the short term. The tender prices index rose by 18 points in January to reach 68, the highest level post-2008.
02/ Leading construction activity indicator
Following a disappointing end to the year, the CFR’s Leading Construction Activity Indicator picked up last month to reach 57, up 6 points on December’s figure. It is predicted to experience a slight dip before picking up again in April.
The indicator uses a base level of 50: an index above that level indicates an increase in activity, below that level a decrease.
03/ Labour costs
The percentage of building firms reporting falling labour costs increased to 6%. Approximately 19% of respondents indicated that they had experienced annual labour cost inflation of less than 2.5%, down 2% from three months ago.
The percentage of respondents indicating that their labour costs had risen by between 2.6% and 5% rose to 67%, up 25% from the previous three months. The percentage of respondents indicating that their wage bill had risen by between 5.1% and 7.5% increased to 6%, whilst the share of firms reporting labour cost inflation over 7.6% shrank from 37% to 0%.
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. In January four of the eleven regions and devolved nations saw their indices improve.
The North-east saw the largest increase with a nine point upswing to 60. East Anglia and the South-west saw their indices rise by 4 and 3 points respectively. Following last month’s peak, Northern Ireland’s index advanced further, growing by one point to reach 51; the highest index on record for the region.
Yorkshire and Humberside experienced the largest downturn - its index plummeting 17 points. However, the region remained firmly in positive territory at 86. East Midland’s index also posted a significant decline of 10 points to reach 60. For the fourth consecutive month, Scotland saw its index depreciate; last month the index dropped five points to reach 39. Others deteriorations were seen by Wales and the West Midlands, as their indices fell by three and two points respectively.
As a whole the UK index, which includes firms working in five or more regions saw its index decline by three points to 54, the lowest index recorded for six months.
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.