Construction output growth slowed again in May

The latest survey of construction industry purchasing managers by Markit Economics shows that growth momentum slowed further from the near two-year high seen in March.

The seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index (PMI) fell from 55.8 in April to 54.4 in May. (Anything over 50 indicates growth.)

While the latest reading still signalled a solid overall increase in construction activity, the pace of expansion was the slowest for three months. Moreover, the survey showed that new business growth and confidence about the 12-month outlook were both much less positive than in April.

Commercial construction remained the fastest growing sector, while the slowest expansion was seen in residential building, which increased only marginally over the month. Civil engineering also showed only weak growth.

New business growth eased markedly in May to its weakest for four months. This meant that the rate of new work expansion was also much slower than the four-and-a-half year high seen in March. Companies that saw an increase in new business inflows mostly commented on competitive pricing strategies at their units. Some firms noted that weaker confidence in the economic outlook had acted as a drag on demand for new construction projects in May.

Slower new business growth and shortages of invitations to tender contributed to a downturn in confidence about the outlook for the next 12 months. The degree of positive sentiment about the year-ahead outlook was the lowest since October 2011 and much weaker than the average recorded since the UK economy entered deep recession in mid-2008.

However, recruitment remained positive, with construction firms adding to their payrolls numbers for the third month running, driven by ongoing growth in business activity during May.

Cost inflation was little-changed from the 25-month low registered in April and slower than the long-run survey average. Although fuel and steel prices led to higher costs in May, there were some reports that subdued demand had assisted price negotiations with suppliers.

Markit senior economist Tim Moore said: “May’s survey highlighted a big fall-back in new business growth following the large spurt of order gains seen during the spring. A softer trend in new projects set the tone for the construction sector in May, with output growth hitting a three-month low and business confidence dropping sharply since April.

“While still in positive territory, the month-on-month fall in business confidence was the greatest since June 2010, which was when plans for the autumn government spending review were first announced. This reassessment of the year-ahead outlook represents worries within the construction sector that weakening economic conditions could leave firms running on empty again once existing projects have come to completion.”

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