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Confidence seeps away as construction output declines again

2 Oct 12 September was the fourth successive month of falling new orders and the second month in a row of declining construction industry output.

These are the key findings of the September survey of construction industry purchasing managers by Markit. The seasonally adjusted Purchasing Managers Index (PMI) posted 49.5 in September, up fractionally from 49.0 in August but below the 50.0 no-change mark for the second month running

Employment in the sector was relatively resilient in September, but confidence in the business outlook was again much lower than at any time prior to mid-2008. Stronger cost pressures placed an added burden on construction companies, with the rate of inflation hitting a six-month high, while low stocks at suppliers resulted in another lengthening of lead-times for raw materials.

Housebuilding was again the worst performing sector during September. The latest drop in housebuilding work was the most marked since December 2010. Commercial activity also dropped, and at the fastest rate for two-and-a-half years. A return to civil engineering growth for the first time in four months helped soften the overall downturn in construction output.

New business inflows decreased for the fourth successive month in September. Although the pace of reduction eased since August, it was still the second-sharpest in almost three-and-a-half years. Construction companies widely noted that the current business climate remained unfavourable for securing new contracts. This in turn led to subdued confidence about the year-ahead outlook for output in the construction sector. The degree of positive sentiment about the prospects for activity was among the lowest seen since the start of 2009.

Lower workloads resulted in another drop in input buying across the UK construction sector during September. Reduced purchasing activity has now been recorded in each of the past four months, but the rate of contraction in September was the least marked over this period. Delivery times from vendors lengthened markedly, which construction firms widely linked to low stocks at suppliers. Input price inflation meanwhile accelerated for the third month running to its highest since March, driven by increased costs for fuel and a range of raw materials during the latest survey period.

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Tim Moore, senior economist at Markit, said: “UK construction PMI data for September presents another bleak assessment of business conditions in the sector. The current stretch of falling new orders is now the longest seen for three years, reflecting shrinking underlying demand alongside delays in spending from both public and private sector sources. A lack of new projects meant that confidence in the business outlook remains close to its lowest since the UK economy nosedived into recession during 2008.

“An upturn in civil engineering output was overshadowed by downturns in house building and commercial activity during September, with the latter posting its weakest performance for around two-and-a-half years. While temporary factors such as the Olympics and an extra working day relative to Q2 somewhat cloud the interpretation of Q3 UK GDP, the principal take out from September’s PMI survey is that underlying construction weakness is likely to continue for the remainder of 2012.”

David Noble, chief executive of the Chartered Institute of Purchasing & Supply, said: “September’s figures show the construction sector’s cupboard to be well and truly bare, rounding off a disastrous quarter. After the longest continual decline in new orders for three years, this is of no surprise.

“Looking ahead, there is little to be positive about. Homebuilding continues to be hit hard, the commercial sector, so long the star of the industry, has lost its sparkle. That civil engineering has seen a moderate increase in activity, is scant consolation.

“This continued poor performance has been compounded by an increase in input prices reflecting rising cost pressures across the global economy. All of this, points to an ominous future. In the absence of investment of some kind, we are likely to see this level of activity continue for some time, or possibly even drop further.”

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