Construction PMI eases to 13-month low in November

CIPS 2 December 2014

Slowest expansion of construction output since October 2013...

Markit/CIPS UK Construction PMI®
Construction PMI eases to 13-month low in November

Markit/CIPS UK Construction PMI® eases to 13-month low in November.

- Slowest expansion of construction output since October 2013...

- ..led by much weaker increase in civil engineering activity

- New order growth moderates, but job creation remains strong in November

UK construction companies indicated a strong expansion of business activity in November, but the overall pace of growth moderated for the second month running to its least marked since October 2013. This was highlighted by a fall in the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) to 59.4 in November, from 61.4 in October.

Nonetheless, the headline index has now posted above the neutral 50.0 threshold for 19 months running and the latest reading was stronger than the long-run survey average (54.5).

All three broad areas of construction activity registered softer rates of expansion in November, led by a marked slowdown in civil engineering. The latest expansion of civil engineering activity was the weakest since July 2013. Meanwhile, residential building was the strongest performing area of activity in November. However, house building and commercial construction activity both expanded at the least marked rates since October 2013.

November data pointed to a rise in new business volumes for the nineteenth successive month. However, the rate of expansion eased to its weakest since June 2013. Reports from survey respondents suggested that strong competition for new work and greater uncertainty about the economic outlook had weighed on client confidence.

Despite softer rates of output and new business growth, the latest survey pointed to resilient and strong job creation across the construction sector. Moreover, the pace of employment growth picked up slightly since the previous month and was still relatively close to the survey-record high seen in July. Meanwhile, increased workloads contributed to a solid rise in sub-contractor usage in November. Latest data also signalled the fastest rise in sub-contractor charges since the survey began in April 1997.

Average cost burdens continued to rise sharply across the construction sector in November. The overall rate of input price inflation accelerated since the previous month and remained stronger than the long-run survey average. Survey respondents generally commented on strengthening demand for construction materials and pressures on capacity at suppliers. Latest data also pointed to a steep lengthening of vendor delivery times, although the rate of deterioration was the least marked since June 2013.

Looking ahead, construction firms remain (on balance) highly optimistic about the prospects for output growth at their units over the year ahead.

Anecdotal evidence highlighted improving underlying demand, strong pipelines of residential building projects and a general rise in new invitations to tender across the UK regions.

However, the overall degree of optimism eased slightly in November to a 13-month low, with some construction firms citing concerns among clients regarding the wider economic outlook.

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“The sector continues to enjoy strong recovery and higher levels of activity, even if the rate of expansion has slowed a little compared to recent months.

“Led by an increase in residential housing activity,new orders and the accompanying rise in levels of staffing, the sector’s growth is no longer confined to the south of the country and is becoming more widespread.

“The flipside of this coin is the rise in demand for construction materials, which has resulted in capacity issues amongst suppliers. As the UK Government announces more detail around road expansion plans, this may add to the pressure on suppliers and their ability to meet the needs of the sector. Though delivery times from suppliers have lengthened, procurement and supply chain managers paint a picture of general optimism amongst the economic doomsayers as the index remains well above the no change mark.

“The one dark spot on the horizon is the danger of prolonged skill shortages across the construction sector. As sub-contractors are currently in high demand and becoming increasingly costly, the recruitment difficulties experienced by many firms in the sector may need to be addressed sooner rather than later; as the sector has some catching up to do to develop more available skilled labour.”

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