- New orders sharply down in most sectors
- Civil engineering just about holding up
- Rebound in optimism for this year
The latest S&P Global/CIPS survey of the UK construction industry paints a somewhat confusing picture with weak activity on the one hand but rising confidence levels on the other.
Most of the drop in activity has come from the decision by housebuilders to rein in development this year, although Shares understands there is still healthy competition for building plots.
YEAR-END SLOWDOWN
The survey last month by data provider S&P Global and CIPS (the Chartered Institute of Procurement and Supply) shows a downturn in business activity and fewer new projects starting in the last quarter.
The headline January Construction PMI (Purchasing Managers’ Index) of 48.4 was the second consecutive reading below the key level of 50 which is the threshold between expansion and contraction.
Housebuilding was the weakest-performing sub-index with a reading of 44.8, registering the steepest contraction since May 2020 as developers cut back their activity due to rising borrowing rates and increased cancellations by buyers.
Commercial construction activity fell for the first time in five months as customers delayed decisions on new projects, while civil engineering was almost back to the 50 level (49.7) with the highest reading since June 2022.
The January survey also showed two other important trends, in employment and orders for materials.
The rate of job shedding last month was the fastest for two years with firms implementing hiring freezes and not replacing lost workers.
Also, purchasing activity fell to its lowest level since May last year which had the benefit of alleviating supply chain pressures as well as reducing price pressures.
LOOKING TO A BRIGHTER FUTURE
Curiously, purchasing manager confidence in the next 12 months increased dramatically in January, with 43% of respondents seeing a rise in activity while only 17% forecast a decline.
In December, confidence hit its lowest level in over two and a half years, dipping into negative territory for only the sixth time in the survey’s history, on expectations of a recession, poor demand and rising inflation.
Commenting on the sudden rebound in sentiment, S&P Global Market intelligence economic director Tim Moore said that ‘for some firms, the recovery in business optimism to its highest for six months was driven by signs of a turnaround in new sales enquires at the start of 2023’.
‘Other construction companies simply noted gradual improvements in the general economic outlook and hoped that confidence would return at a later stage this year to alleviate the current lack of momentum in the house building sector’, he added.
CIPS chief economist Dr John Glen described it as ‘a construction conundrum that builder optimism has risen to the highest for six months with the sector facing the second consecutive month of order books looking increasingly empty’.
Glen concluded: ‘This hopeful aspect could potentially be attributed to more enquiries filtering through to building companies, which could develop into concrete orders in the coming months alongside the economy showing small, incremental improvements.’
