UK construction companies indicated a continued recovery in business activity and new order inflows in April, again led by work on commercial projects. This in turn contributed to employment growth for the second month running, and confidence in the 12-month outlook remained much stronger than throughout much of 2011.
The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) for April signalled that activity grew at a slower rate than the 21-month high seen in March, when good weather had helped boost activity levels. However, at 55.8, down from 56.7 in the previous month, the latest index still showed good growth. (Any score over 50 indicates growth.)
The PMI stands in stark contracts to recent government figures from the Office for National Statistics showing construction to be in recession.
Purchasing managers reported higher levels of business activity in all three broad areas of the construction economy, with the strongest pace of expansion again seen in the commercial sector, followed by civil engineering. In contrast, growth of residential building remained only marginal and, despite picking up since March, remained much weaker than the overall UK construction sector trend.
Improving new order books underpinned the latest solid expansion of total construction activity in April. The rate of growth of new business remained strong, albeit less marked than the four-and-a-half year high registered in March. Anecdotal evidence from survey respondents suggested that improved confidence among clients had supported the latest rise in new contracts secured at their units.
April data pointed to a moderate increase in staffing levels in the construction sector, thereby extending the current period of growth to two months. While the present trend compares favourably with the job cuts seen throughout much of the past four years, the rate of employment growth in April was much weaker than the pre-recession average.
Increased staffing levels reflected a combination of rising workloads and resilient confidence in the outlook for business activity over the next 12 months. Latest data pointed to a robust degree of positive sentiment about the business outlook, with the level of confidence comfortably above those seen throughout much of 2011.
UK construction companies reported another solid increase in their purchasing activity in April, extending the current period of growth to 16 months. However, higher levels of input buying,alongside reports of low stocks at suppliers, resulted in another deterioration in average vendor performance. Delivery times from suppliers have lengthened in each month since September 2010.
Use of subcontractors was largely unchanged compared to March, though rates charged fell for the first time in four months, signalling increased competition among subcontractors.
Input price inflation meanwhile eased in April to its lowest for just over two years, helped by reports of a moderation in raw material cost inflation. Average cost burdens have nonetheless now risen for 27 months running, with the latest increase largely attributed to higher fuel and energy prices.
Markit senior economist Tim Moore said: “April saw another generally buoyant UK Construction PMI survey, with rates of output and new order growth close to March’s recent highs. Improved inflows of new work have also helped raise business expectations in the sector from the three-year low seen last autumn.
“The upturn in businesses’ expectations on a year-ahead horizon represents something of an antidote to the news that the construction sector double-dipped in Q1. However, it should be noted that since the 2010 government spending review, the level of confidence in the construction industry has consistently run well below the average seen in the decade before the financial crisis, suggesting there has been a widespread loss of optimism since the deficit-fighting austerity measures were first announced. The worry is that the sector may suffer from a lack of large-scale new projects once current undertakings such as the Olympics are completed. Further evidence of underlying fragilities also persisted in the beleaguered housing sector where activity growth fell well short of the trend in the wider construction economy.
“Cautious job hiring trends meanwhile continued across the UK construction sector, with firms generally able to expand their business activity without needing to take on more staff. This perhaps reflected the deeper malaise in the sector, with excess capacity meaning that construction companies are looking for a much stronger pipeline of new projects before new employees are taken on in significant numbers.”
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