Further fall in UK construction sector activity with construction jobs cut at sharpest rate in four months
(19/11/2009)

The Chartered Institute of Purchasing & Supply (CIPS)'s Purchasing Managers' Survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies.

The seasonally adjusted CIPS / Markit Construction Purchasing Managers’ Index (PMI®) posted a reading of 46.2 in October, signalling a further fall in UK construction sector activity, and at a faster pace than that seen in September. A decline in activity has now been recorded in each of the past twenty months. The UK construction sector remained firmly in recession during October, with falling activity and employment again signalled. Adding to the difficulties facing UK construction companies, input costs rose further.

Sub-sector data showed growth in residential construction for a second successive month. However, this trend was not mirrored within the commercial or civil engineering sub-sectors, where further contractions were recorded. The decline in civil engineering activity was the fastest recorded in seven months.

Latest data showed that new business levels remained unchanged since September, ending a nineteen-month period of decline. Whilst some panellists reported that tenders for business were proving successful, these were offset by other comments of financial constraints at clients.

However, with activity levels falling further, purchasing volumes decreased, with the pace of reduction accelerating since September to the fastest in four months. Reflective of the sustained decline in demand for materials from construction companies, suppliers shortened lead times for an eighteenth month in succession, indicative of the extent to which excess capacity has expanded during the current recession.

Staffing levels at construction companies fell in October. The latest pace of job cuts was substantial and accelerated since September, as redundancy programmes continued to be implemented. Requirements for sub-contractors reduced markedly in October.

Input prices increased in October for the first time in a year, as higher fuel prices and unfavourable exchange rate movements resulted in rising costs.

Optimism over further business prospects remained high during the month. Panellists reported that they expected recovering economic conditions to boost demand and expenditure. Anticipated improvements in workflow resulting from marketing initiatives were also noted.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “These continue to be worrying times for the UK construction sector as firms continue to struggle in the face of difficult market and economic conditions. The fact that the sector took another turn for the worse this month just highlights how fragile it still is. Further drops in commercial and civil engineering activity were the key drivers behind the bad news. A stabilisation in order books did little to support activity, while weak sterling and higher fuel prices added to constructors' difficulties.

“Perhaps of most concern is the continued slashing of jobs at construction firms. The pace of job cuts actually accelerated in October as the current state of the sector means that many who have lost jobs will struggle to find something else before Christmas. The only light at the end of the tunnel was optimism over future business prospects as purchasing managers said they expect workflow to rise due to improving economic conditions and marketing initiatives.”

Sarah Ledger, Economist at Markit said: “The UK construction sector posted its twentieth successive month of contraction in October, with the rate of decline accelerating for a second successive month. However, compared to data recorded at the height of the downturn, the current fall in UK construction sector activity remained relatively modest.

“Encouragingly, data for the residential construction sub-sector signalled improved activity levels for the second consecutive month, and overall new orders volumes received by UK construction companies were reported to have stabilised. Unfortunately, persistent spare capacity meant that further job cuts were made, with this showing no sign of easing. However, with the anticipation of a recovery in economic conditions, optimism over future business activity remained high.”

The November Report on Construction will be published on Wednesday 2nd December