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Sat October 31 2020

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Construction continues to expand, but recession is round the corner

5 Oct 10 The construction industry continues to expand, according to two new sets of industry statistics, but a return to recession is expected over the next few months.

The construction industry continues to expand, according to two new sets of industry statistics, but a return to recession is expected over the next few months.

The September Markit / CIPS Construction Purchasing Managers’ Index (PMI) posted a score of 53.8, up from the 52.1 recorded in August.

And the latest Construction Activity Barometer, from Ernst and Young and the Construction Products Association (CPA), showed a reading of 74 for the third quarter, a marginal fall on Q2, but a substantial increase on the same period a year ago.

For both figures, a score of above 50 represents an increase in activity, while a reading below represents a fall.

Noble Francis, economics director for the CPA, said: “Sales of both heavy side products and light side products were strong relative to 2009 Q3.

“From a level of 66 in 2010 Q2, the light side sales index climbed to 73, its highest level in three years and 54% of light side respondents reported that sales volumes were higher than in the same quarter 12 months ago. The heavy side sales index stood at 79 for the second consecutive quarter and a significant 71% of respondents reported that their sales rose.” 

Expectations about the future, however, are more subdued, Francis added: “Respondents to the survey did warn that recovery is unlikely to be sustained beyond 2010 and expressed concern about the pending Comprehensive Spending Review on 20 October.

“The Association’s latest forecast expects that, despite a slight rise in construction output this year, the contraction in capital expenditure will be sufficient to send the industry back into recession in 2011.”

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The improved Construction PMI score was boosted by commercial and civil engineering work, but again, confidence over future business was notably lower, and jobs were cut at the fastest pace in six months.

The rise in civil engineering activity was the strongest since February 2008. In contrast, the residential construction sub-sector recorded a marked fall in activity, ending a twelve-month period of growth.

Meanwhile, input prices faced by constructors increased for an eighth successive month.

Confidence amongst UK construction companies was notably weaker during September, as concerns over public spending cutbacks remained. The degree of optimism fell since August to an eighteen-month low. Only in the second half of 2008 has sentiment been lower than that indicated in September.

Sarah Ledger, economist at Markit and author of the Construction PMI, said: “Confidence amongst construction companies suffered a sharp knock in September. This was played out through a further marked cut in jobs.

“However, the overall economy is not forecast to return to the depths of the downturn recorded in 2008/2009, suggesting that constructors have had their fingers burnt by the severity of the recent recession and are perhaps overly cautious on their outlook for the sector.”

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