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PMI survey shows growth up again but optimism ebbs a little

2 Oct 14 According to the latest survey of purchasing managers, September saw the sharpest growth in output for the UK construction industry for eight month.

However, while the overall performance of the construction sector was close to its strongest since the summer of 2007, latest data indicated that new order growth and job creation both eased to their lowest for four months.

Moreover, supply chain pressures resulted in a further steep increase in input costs, as well as further delays in the receipt of construction materials.

Looking ahead, construction firms remain very optimistic about the business outlook, with more than half (54%) expecting a rise in activity over the next 12 months and only 12% forecasting a fall. However, the latest survey signalled that the degree of positive sentiment has eased since August and was actually the lowest for almost a year.

Adjusted for seasonal influences, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted a score of 64.2 in September, up fractionally from 64.0 in August. This was the highest score (therefore indicating sharpest expansion) since January 2014 and the second-highest since 2007.

The rise in the headline index was driven by an acceleration in both commercial and civil engineering activity growth during September. Commercial construction increased at the strongest pace since January, while civil engineering output rose at the most marked pace for six months. Meanwhile, housing activity remained the fastest growing area of construction output in September, but the rate of expansion eased to its weakest since May.

Construction output growth in September was supported by a further strong expansion of incoming new work, although this latest increase in new business was the least marked since May.

September data pointed to a further moderation in job creation across the construction sector from July’s survey-record high. Subcontractor usage increased for the fourth month running and the squeeze on subcontractor availability remained substantial, despite moderating from August’s 17-year record.

Alongside pressures on skilled staff availability, construction companies pointed to ongoing supply chain bottlenecks in the wake of strong demand for construction materials in September. Latest data indicated that delivery times from vendors lengthened sharply over the month, with survey respondents mainly citing low stocks of bricks and blocks at suppliers.

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Tim Moore, senior economist at Markit and author of the Markit/CIPS Construction PMI, said: “UK construction firms experienced a sustained and strong output recovery during September, in contrast to the weakening picture seen across the manufacturing sector at the end of this summer. Survey respondents highlighted that improving domestic economic conditions helped boost funding availability and foster confidence towards large scale project commitments, especially in the commercial development sector.

“Housing activity remains the brightest spot in the construction sector, but its outperformance has started to fade. Moreover, residential construction continues to see the most intense pressures on supply chains and skilled labour availability.

“Looking ahead, construction firms are more cautious about their prospects for output growth than at any time since October 2013. Although positive overall, a range of factors tempered business optimism in September, including strong cost pressures, concerns about skilled labour supply and signs that house building growth has cooled from the multi-year records set earlier in 2014.”

David Noble, chief executive of the Chartered Institute of Purchasing & Supply (CIPS), which sponsors the report, said: “The construction industry’s strong performance continued unabated in September, sending out a reassuring message about the underlying health of the UK economy. As a sector, construction is sensitive to changes in economic fortune, so the fact that we are witnessing sustained growth bodes well as we enter the final quarter of 2014.

“Domestic housing’s mantle of star performer was dislodged slightly in September, with growth in commercial and civil engineering activities accelerating notably. The rise in commercial activity was the second-fastest since the summer of 2007 and could be the most telling as it represents businesses’ willingness to invest; they are putting their money where their mouth is.

“However, pressure points in the industry are becoming ever more acute as suppliers race to catch up after years of caution and capacity cutting. This is borne out in supply chain bottlenecks as a result of strong demand for construction materials, a squeeze on subcontractor availability and the lengthening of vendor delivery times. Years of caution may now impede the sector’s performance if suppliers cannot re-stock and hire at a speed that demand requires.”

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