Construction PMI® shows sharpest expansion of construction activity for four months

CIPS 3 March 2015

Output growth rebounds further from December’s 17-month low

Markit/CIPS UK Construction PMI®

Sharpest expansion of construction activity for four months

Key points:

-Output growth rebounds further from December’s 17-month low

-Sharp rise in incoming new work

-Survey-record rise in rates charged by sub-contractors

 UK construction companies indicated a further acceleration in output growth during February, driven by the fastest increase in new orders since October 2014. Higher levels of activity were seen in all three sub-categories of construction work, with residential activity again seeing the steepest rate of growth. Strong demand for construction materials, alongside ongoing shortages of stock at suppliers, contributed a steep and accelerated rise in input prices. Moreover, rates charged by sub-contractors increased at the most marked pace since the survey began in April 1997.

Adjusted for seasonal influences, the Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 60.1 in February, up from 59.1 in January and above the neutral 50.0 threshold for the twenty-second successive month. The latest reading picked up further from December’s recent low and signalled a sharp expansion of construction output that was the fastest since October 2014. Residential, commercial and civil engineering activity all increased at the steeper rates in February.

Survey respondents generally attributed increasing output levels to strong workloads and rising spending patterns among clients. The rate of new business growth accelerated further from December’s 18-month low and was the sharpest since last October. Construction companies mostly linked new business gains to improving economic conditions and positive sentiment towards the business outlook. However, some survey respondents noted that uncertainties related to the outcome of the General Election had resulted in delays to spending decisions among clients.

Higher levels of business activity contributed to further job creation across the construction sector in February. Although still robust, the rate of employment growth moderated to its least marked since December 2013. Meanwhile, sub-contractor usage rose at an accelerated pace in February, which led to another steep reduction in the availability of sub-contractors. Strong demand for sub-contractors in turn helped push up average rates charged by sub-contractors, with the latest increase the fastest since the survey began almost 18 years ago.

February data pointed to worsening supply-chain pressures across the UK construction sector, as highlighted by vendor delivery times lengthening to the greatest degree since October 2014. Capacity shortages among suppliers and strong demand for construction materials also contributed to a marked upturn in input price inflation since January. 

More than half of the survey panel (51%) anticipate a rise in business activity over the next 12 months, while less than one-in-ten forecast a reduction (9%). Positive sentiment towards the business outlook was linked to robust pipelines of new work and favourable expectations for client spending over the year ahead.

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

“The construction sector is awash with positive sentiment, rejecting wholeheartedly the downbeat end to last year, with the steepest rise in output activity for four months. The good fortune comes in threes – as respondents report a rise in staffing levels, higher levels of new orders and rising rates for sub-contractors.

“Clients are ready to spend, resulting in rising employment levels, but tempered by continuing skills shortages now seen for a number of months. Sub-contractors have been the winners; their rising rates evidence of continued demand for their capacity and the strongest since records began.

“As the sector revives a little more after the devastating effects of the recession, supply chains are experiencing increased pressure and vendors are struggling to keep pace resulting in longer delivery times. Generally worldwide, commodity prices have been falling, but the sector is experiencing strong demand for quality materials and so supply continues to be challenging.

“One small dark spot on the horizon concerns outcomes of the General Election, with a ‘wait and see’ approach from customers such as the public sector. Though there may still be some obstacles ahead, the construction sector is ready to continue to bulldoze a positive path ahead.”

The March 2015 Report on Construction will be published on: Monday 06th April 09:30

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