The latest Construction Purchasing Mangers’ Index Figures have been released, showing that housebuilding continues to bounce back from a difficult start to the year, but construction’s new orders and outlook is in decline.
Conclusions from the data are as follows:
• Headline PMI remains unchanged at 52.5
• New business growth slips back into decline amid general uncertainty towards outlook
• Input price pressures sharpen on the back of higher fuel and steel costs
Some firms suggested that unusually good weather conditions had enabled them to continue catching up after prior months’ weather related disruptions. Both the commercial and civil engineering sectors remained in growth territory for the second month running in May, with the former being the only category to record a faster rate of expansion than in April.
New order books slipped back into decline during May. Panel respondents blamed political and economic uncertainty, subdued retail sector conditions, and fragile business confidence as key causes of weaker demand for construction projects.
Optimism towards future growth prospects slumped to a seven-month low in May. The drop in confidence was linked to fears of political and economic uncertainty and an expected slowdown in the construction sector.
Job creation softened to a four-month low, with companies reporting a shortage of skilled staff availability.
Purchasing costs rose sharply in May. The rate of input price inflation was the steepest registered since February. Panel members reported elevated fuel costs, alongside higher plastic and steel-related input prices. Supplier delivery times continued to worsen – reportedly due to shortages of materials at vendors. However, this was at the lowest rate it had decreased at in the past 18 months.
Phil Harris, Director at BLP Insurance, said: “The unchanged pace of construction growth is unsurprising as new developments, previously delayed by the bad weather, continue to come on stream. However there remains a tremendous amount of uncertainty in the sector, exacerbated by extended material lead times which are increasing costs and delaying the build programme. Skills shortages remain a critical issue, and although there’s extensive discussion on how to address this, a solution is still a long way off.
“Businesses with exposure to Carillion are also still feeling the repercussions of the collapsed construction giant, while those that avoided any impact may still worry about exposure to a similar situation occurring elsewhere. The well-publicised increasing debt levels of outsourcing companies with construction arms will have done little to ease the sense of nervousness.
“The strength of the construction industry at present lies in housing, with commercial activity lagging behind. In the housing sector the fundamentals are still strong; demand for new homes is high, supported by consumer confidence and a low interest rate.
“Although May was a stronger month for commercial activity, the sector remains prone to being buffeted by the political outlook because it lacks the domestic growth pressure prevalent in the housing market. Office space demand in London is declining, retailers continue to hit the headlines with store closures, and while hotels and leisure are proving resilient, overall the sector is not booming.”
Mark Robinson, Chief Executive of Scape Group, added: “Although it is extremely positive to see that housebuilding activity remained buoyant in May as it continues to rebound from the heavy snow in March, it is disappointing to see overall construction new orders and outlook decline.
“The industry is suffering from ongoing political uncertainty, despite the clear long-term requirement for infrastructure investment. The expanding UK population is placing considerable pressure on our public services, and a lack of proper upkeep and investment will put a strain on local economies, as evidenced by Northern Rail over the past week. Spend on improved connectivity will unlock huge growth potential for our regions and for the UK economy as a whole.
“The short supply of skilled labour and the cost implications of this remains a barrier to the construction sector. The Government must address the plummeting apprenticeship starts, and we need to think more creatively about how to incorporate apprentices into staffing structures, ensuring maximum benefit for the individuals and employers.”
Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, said: “It’s encouraging to see the housing sector put in a strong performance for a second month running, after stumbling at the beginning of the year, and with only small improvements in the other sectors, residential building is keeping construction’s head above water. It’s likely that the construction sector’s performance will be a slow and steady crawl through the second quarter, as the spectre of Brexit continues to dominate, and the double pincer movement of few orders, and higher costs, could see the sector stutter further.”