The latest state of trade survey from the Construction Products Association shows a majority of manufacturers reporting rising sales but with headwinds intensifying.
A net balance of 30% of heavy side manufacturers and 17% of light side manufacturers reported that product sales increased in the second quarter of 2022 (Q2) compared to the first quarter (Q1). Sales balances weakened from 43% (heavy side) and 50% (light side) in the Q1 survey.
At the same time, all heavy side firms and 94% of those on the light side reported an annual rise in costs. For the heavy side, this was the fourth consecutive quarter of universal cost increases that span across inputs such as fuel, energy, raw materials and labour.
Against an economic backdrop of rising inflation, manufacturers said that demand was likely to be the key constraint on activity in the months ahead, leading to the first negative balance for expected sales since mid-lockdown in 2020. On balance, 30% of heavy side firms, whose products tend to feed into the earlier stages of construction, anticipate a decrease in sales in Q3 and a third anticipate a fall over the next 12 months. As a result, a balance of 11% also envisage job cuts in the year ahead.
The CPA concluded that the Q2 survey results provided the first indication that the inflationary backdrop is now starting to impact on confidence around the near-term outlook for construction.
CPA senior economist Rebecca Larkin said: “In recent quarters, construction product manufacturers have reported escalating inflationary pressures across fuel, energy, raw materials and wages. Added to this, there are early reports that higher costs further down the supply chain for transport, insurance, reverse charge VAT, and the removal of the red diesel rebate are starting to be reflected in lower confidence and delayed decision-making for new construction projects.”
She added: “Demand currently remains strong, particularly in the housing, RM&I, industrial and infrastructure sectors, but the headwinds related to costs are intensifying. Consumer price inflation is yet to peak too, which poses a downside risk if households and businesses rein in spending as disposable incomes and margins are eroded.”
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