By Daniel Hunter
March data highlighted that business conditions in the UK construction sector deteriorated at a slower pace than in the previous month. The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) — which measures overall output in the sector — posted 47.2 during March, up from a 40-month low of 46.8 in February.
That said, the latest reading was below the 50.0 no-change mark for the fifth month running and much weaker than the series average (54.0). Anecdotal evidence suggested that a combination of subdued underlying demand and unusually bad weather conditions had contributed to lower construction output during the latest survey period.
Civil engineering was by far the worst performing broad area of construction activity in March. Latest data indicated a steep drop in civil engineering output, and the pace of contraction was the fastest since October 2009. Commercial activity meanwhile decreased for the seventh time in the past eight months during March. Residential construction output bucked the overall downward trend, with activity rising at a marginal pace that was the most marked since May 2012.
New business received by UK construction companies fell for the tenth consecutive month in March, which is the longest period of continuous decline recorded since 2008-09. That said, the rate of contraction eased in March to the slowest since October 2012. Survey respondents suggested that successful marketing strategies and greater new housing starts had partially offset the overall downturn in underlying demand during March.
Lower levels of output and incoming new work led to a renewed reduction in employment numbers during March. The fall in staffing levels was the first in 2013 so far, but the rate of job shedding was only marginal. A lack of new work to replace completed projects also contributed to decreased purchasing activity in March, which extended the current period of falling input buying to ten months.
Supplier delivery times lengthened again in March, reflecting low stocks and reduced capacity among vendors. However, the latest deterioration in supplier performance was the least marked since May 2012. Meanwhile, input cost inflation was subdued compared to its long-run trend. Higher fuel and energy prices were the most frequently cited sources of cost inflation.
Looking ahead, construction companies (on balance) forecast a rise in output over the coming year, mainly reflecting hopes that capital spending will improve. The degree of positive sentiment picked up in March to its highest for 11 months.
“The construction sector seems to have a spring in its step as confidence hit its highest level in a year despite the challenging state of the weather, performance and output in March," David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said.
"Whether this is a reaction to the Government’s efforts to rejuvenate construction or simply an acknowledgement that things could not have been much worse than in February, we will have to wait and see.
“While the Government’s focus on housing appears to have had a positive effect as it out performed other sectors, civil engineering is a different story; here the lack of public spending has resulted in the fastest rate of contraction since October 2009. At the same time, the commercial sector is doing little to pick up the slack and experienced its second weakest reading in 39 months.
“The latest figures complete the picture of a fairly dismal first quarter, which has admittedly been affected by unusually bad weather, with output and employment down on the last quarter of 2012. New orders on the other hand are less hard to come by in comparison, which offers some justification for the boost in confidence.”