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Construction PMI hits lowest level since October 2009

4 Mar 13 The latest monthly survey of construction’s purchasing managers shows that new work has now fallen for nine consecutive months.

It suggests a solid reduction in total construction output led by declines in commercial and civil engineering activity.
Despite this, there is more optimism around about the year ahead.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) dropped to 46.8 in February, down from 48.7 for January. Anything below 50 indicates shrinkage rather than growth and the index has posted below the neutral 50.0 value in each of the past four months. The latest score signals the fastest pace of contraction since October 2009.

The fall in construction output reflected a return to declining levels of commercial building work and a sharp decrease in civil engineering activity. Commercial construction decreased at the steepest pace for more than three years, while the latest reduction in work on civil engineering projects was the fastest since October 2009. This offset an increase in housing activity in February, with the marginal expansion in residential building the first improvement since May 2012.

UK construction firms highlighted an ongoing deterioration in their new order inflows during the latest survey period. Lower levels of new work have been recorded in each month since last June, reflecting cuts to client budgets and intense competition for new work. Nonetheless, employment numbers rose fractionally in February, contrasting with the downward trend seen during the final three months of 2012.

Reduced new business volumes contributed to a further decline in purchasing activity at construction companies. Input buying has now fallen for nine consecutive months.

Looking ahead, construction companies (on balance) anticipate an expansion of business activity at their units over the next 12 months, with the degree of positive sentiment the strongest since last April. Survey respondents cited hopes that new sales and marketing strategies, alongside a general rise in new invitations to tender, will boost business activity over the year ahead.

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Markit senior economist Tim Moore, who compiled the survey on behalf of the Chartered Institute of Purchasing & Supply (CIPS), said: “This is undoubtedly a dismal set of data for the UK construction sector, especially the sharp falls in commercial building work and civil engineering activity.

“With total output falling at the steepest pace for over three years, the latest PMI survey is confirmation that January’s construction decline was not entirely snow-related. Downward pressure on client budgets, alongside subdued public sector spending, again led to lower output levels and reduced new order inflows.

“The only exception to the overall output trend was a stabilisation in residential construction, with eight months of sustained decline ending in February. Moreover, construction companies cited new house building projects as an area having some potential to boost UK construction output over the next 12 months.”

CIPS chief executive David Noble said: “There is barely a crumb of comfort in this month’s figures for the construction industry to ease the continued decline in performance. The dramatic fall in civil engineering activity is particularly worrying, having been the one bright spot in the second half of 2012. Whilst the housing sector has registered mild growth for the first time in nine months, it remains weak compared with its long run average. To add insult to injury, commercial activity declined at a worrying pace.”

Market’s findings prompted a swift cry from the Civil Engineering Contractors Association for chancellor George Osborne to bail out the construction industry. CECA director of external affairs Alasdair Reisner said: “While care must be taken not to put too much weight on one set of statistics, the steep decline in the CIPS figures should raise a note of concern. The construction sector is fundamental to the government’s recovery strategy, and yet it currently languishing in an anaemic condition, showing only weak or negative growth. If the chancellor is to achieve his goal of kick-starting growth through infrastructure provision, it is vital that he takes the necessary steps to increase workloads and unblock smaller local infrastructure projects without delay.”

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