Supply chain normalisation helps construction sector gain momentum

6 June 2023

Supply chain normalisation has been credited with helping the construction sector see its strongest rise in new orders for more than a year.

Data from the S&P Global/CIPS UK Construction Purchasing Managers’ Index for May shows activity in the sector hit 51.6 (50 being a neutral response) – up from 51.1 in April.

The rise represents the fourth consecutive uptick in activity, and despite being modest, it still means the construction sector is in its strongest position since February.

The improvement has been largely put down to improved supply conditions – which have contributed to the largest improvement in vendor lead times since August 2009. This has also ensured the rate of input inflation is at its weakest for 32 months.

According to the data, greater availability of inputs is attributed to there being fewer logistics bottlenecks and “an improved balance between demand and supply,” which has allowed companies to open up their order books.

The overall rise in construction order books is now at its strongest since April 2022, and this – in turn – has given companies confidence to invest in new staff. The data reveals staffing numbers are also up for a fourth month in a row.

Commenting on the data, S&P Global Market Intelligence economics director, Tim Moore, said: “Supply chain normalisation helped to moderate cost inflation, as signalled by the strongest improvement in delivery times for construction products and materials for almost 14 years.”

He added: “Rising demand among corporate clients and contract awards on infrastructure projects meanwhile underpinned the fastest rise in new orders since April 2022.”

According to the data, purchasing price inflation appears to be relaxing because of rising competition between suppliers.

Some 45% of the survey panel predicted an increase in construction output levels while only 14% predicted a decline.

However, the data did note that commercial building was artificially propping up the sector, and that there is a worrying drop in house-building activity.

The data shows work on residential building projects decreased for the sixth month running – and at the steepest pace since May 2020. Not including the pandemic-related downturn, this category of construction activity showed the lowest activity (42.7) for more than 14 years.

Moore said: “Rising interest rates and subdued housing market conditions have resulted in the sharpest drop in housing activity for three years.

“Survey respondents were also concerned about the broader UK economic outlook, which contributed to an overall drop in output growth projections to the lowest for four months.”

CIPS chief economist, John Glen added: “The cost of living is making buyers hesitate about purchasing homes. As a result, builder confidence was pinched to remain below the survey average.”

On a more positive note though, Glen said construction companies do not appear to be as worried about input availability as they were in the past.

He said: “Companies are de-stocking their built-up supplies because, with the fastest turnaround in supplier delivery times since August 2009, builders expected that demands for materials would be met should a long-awaited sustainable upturn ever arrive."

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