UK construction output contracted for the first time in six months as ‘The Beast from the East’ hit business activity and civil engineering work.
IHS Markit’s Purchasing Managers’ Index dropped sharply from 51.4 in February to 47 in March. A reading of over 50 suggests growth while one under 50 implies contraction.
Unusually bad weather in the form of ‘The Beast from the East’ and ‘Storm Emma’ led to the fastest overall decline in construction output since July 2016.
This was also partially affected by the sharpest drop in civil engineering work for five years in March.
'ACCELERATING EMPLOYMENT GROWTH'
One of the few bright spots in the data was accelerating employment growth, which hit a three-month high. This was driven by upcoming projects and long-term business expansion plans.
Purchasing levels are also up slightly as pressures on cost increases eased back.
IHS Markit associate director Tim Moore says rising employments and a rebound in business expectations to a nine-month high suggest construction activity will improve over the near term.
‘However, survey respondents noted that underlying demand remains constrained by heightened economic uncertainty and risk aversion among clients,’ warned Moore.
Chartered Institute of Procurement & Supply director Duncan Brock is also cautious, flagging the ‘marginal improvement’ in residential building was softer than most of 2017.
He believes this could indicate there is something more serious affecting the sector as Brexit-related uncertainty continued.
WHAT DOES THIS MEAN FOR INVESTORS IN CONSTRUCTION STOCKS?
UK-listed construction stocks have suffered a weak performance following underwhelming construction output data over the last few months.
Out of all UK construction stocks with a market cap of over £300m, less than a third of these companies would have made investors any money over the last six months in share price terms.
The most profitable stock over this period was Ibstock (IBST) as its shares have rallied 22.7% to 283.4p. It has been increasing capacity as UK brick demand is currently exceeding supply.
Costain (COST) and Forterra (FORT) made smaller gains of approximately 4%.
Among the weakest performers over the last half year is Kier (KIE), down 19.6% to 930.2p following the fall-out from the collapse of Carillion. Morgan Sindall (MGNS) shed 18.5% to £11.62 and CRH (CRH) fell 16.5% to £23.66.
