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Industry remains optimistic despite slowing growth

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Commercial building appears to have overtaken housing as the busiest sector of the construction industry, judging by the latest survey of purchasing managers.

The monthly construction survey by Markit on behalf of the Chartered Industry of Procurment & Supply (CIPS) indicates a definite slowing in overall construction growth in November, with output, new business and employment all rising at slower rates than in the previous month. However, optimism for business prospects seems undimmed.

At 55.3, the headline seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) was down from 58.8 in October and signalled the slowest expansion of business activity for seven months.

Aside from the pre-election slowdown seen in April, overall output growth was the weakest since mid-2013.

All three broad areas of construction activity experienced a slowdown in output growth during November. Residential building activity increased at the weakest pace since June 2013, while civil engineering activity rose at the slowest rate for six months and was the worst performing sub-category. Commercial construction activity topped the growth table, but the latest expansion was less marked than October’s eight-month high.

The survey authors report that construction companies mainly commented on supportive economic conditions and rising workloads at their units. However, there were some reports from survey respondents that cited a lack of new work to replace completed projects in November, which in turn acted as a drag on business activity growth. Reflecting this, latest data indicated a weaker rise in overall new business volumes. In some cases, construction firms suggested that more cautious spending patterns among clients had weighed on new order inflows.

 

 

 

 

 

 

Slower growth patterns across the construction sector contributed to a moderation in job creation from the 11-month high recorded during October.

 

Although still strong in a historical context, said Markit, the latest rise in staffing levels was the weakest September 2013. Subcontractor usage continued to rise at a solid pace in November, but their average

 

charges increased at the least marked pace for almost two years.

 

Input price inflation also moderated in November and was well below the long-run survey average. Lower prices for some raw materials, particularly metals, had partially offset rising labour costs.

 

Overall, survey respondents remain highly upbeat about the business outlook, with 55% forecasting a rise in output over the year ahead and only 5% expecting a fall. The degree of positive sentiment was

 

down only slightly since October and still well above the post-crisis average.

 

 

 

 

 

 

Markit senior economist Tim Moore said: “The UK construction recovery is down but not out, according to November’s survey data. Aside from a pre-election growth slowdown in April, the latest

 

expansion of construction activity was the weakest for almost two-and-a-half years amid a sharp loss of housebuilding momentum.

 

“Residential activity lost its position as the best performing sub-category, but a supportive policy backdrop should help prevent longer-term malaise. Strong growth of commercial construction was

 

maintained in November as positive UK economic conditions acted as a boost to new projects, while civil engineering remained the weakest performer.

 

“Overall the latest results suggest that construction companies have become a little more cautious towards year-end, especially in terms of job hiring. However, a healthy flow of new tenders from public

 

and private sector clients is expected to provide a tailwind to growth heading into 2016. Reflecting this, UK construction firms were again overwhelmingly positive about the outlook for their business

 

activity, while only a small proportion anticipates falling output levels during the next 12 months.”

 

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