The latest Markit/CIPS Construction Purchasing Managers’ Index® (PMI®) fell to 51.4 in January, down from 53.2 in December - any number over 50 indicates expansion rather than contraction.
The January data signalled a thirteenth successive monthly rise in UK construction sector output. However, the rate of expansion eased and was modest. The weaker increase in activity was led by a slowdown in new order growth, with some companies also noting the completion of existing contracts. Furthermore, employment stagnated.
Despite this, confidence regarding future business activity strengthened to reach an eight-month high. The latest reading pointed to growth of UK construction sector output. However, the rate of expansion slowed to the weakest in four months and was below the long-term trend.
Two of the three broad construction categories monitored – housing and civil engineering – registered decreases in output in January. The rates of decline were marginal and broadly similar in both sectors, while commercial activity rose for a twenty-third consecutive month.
New business received by UK construction companies continued to rise at the start of 2012. However, the rate of growth eased to the weakest in the current four-month period of increase. Construction companies on the Markit panel commented that reductions in clients’ budgets had led to the slower rise in new business.
Unchanged construction employment levels
The January data has signalled an unchanged level of employment in the UK construction sector. Job cuts at some companies caused by lower output and new orders offset increased staffing levels at others that were driven by higher workloads. Similarly, usage of sub-contractors was little changed on the month.
Reflecting sustained growth of output, purchasing activity increased again in January - subsequently, suppliers’ delivery times lengthened. Anecdotal evidence attributed the deterioration in vendor performance to shortages of stocks at suppliers.
Significant rise in construction company input costs
Input costs faced by UK construction companies rose markedly during January, driven by higher raw material and energy prices. However, the rate of cost inflation eased and was the third-slowest in the current two-year period of monthly increases.
UK construction companies were optimistic in January that activity would increase over the next year, with confidence improving to the second-strongest degree in the survey history to reach the highest since May 2011. Improving economic conditions and new marketing initiatives are expected to support growth, although low confidence amongst customers and a lack of available funding acted as drags on optimism.
Sarah Bingham, Economist at Markit and author of the UK Construction PMI® said:
“2012 started positively for the UK construction sector, with further output growth recorded. However, at a four-month low, the expansion was modest, reflecting a weaker rise in the volume of new business received compared with December. Furthermore, growth was focused on commercial construction, with house building and civil engineering activity levels both falling slightly. The resulting overall increase in output was insufficient to sustain job creation, with employment stagnating.
“On a more positive note, construction firms grew more upbeat about their prospects for 2012, with business confidence showing the second-greatest monthly jump in the survey’s history. This suggests that growth may pick up again in the sector in coming moths and, on top of the surprisingly strong start to 2012 reported by the sister survey of manufacturing, will raise hopes that a slide back into recession may yet be avoided.”
The Purchasing Managers' Survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. It is designed to provide one of the earliest indicators of significant change in the economy.