Construction sector suffers sharp contraction

All parts of the construction industry saw a sharp fall in workloads, new orders and tender prices over the second quarter of this year, the latest Construction Trade Survey has shown.

The Construction Products Associations (CPA) quarterly survey found that large and medium-sized building contractors reported that output in the second quarter of 2012 was lower than during the first quarter, which in turn was lower than Q4 2011.

Output has now fallen in four of the last five quarters.

The survey also found that building contractors continue to report that order books were falling. The overall orders balance stood at -25% in the first quarter and deteriorated to -50% in Q2.Other findings included:

• In Q2 30% of building contractors, on balance, reported rises in costs
• In 2012 Q1, nearly a third of firms, on balance, reported that profit margins reduced yet this had increased to almost half of all firms, 49% on balance, by 2012 Q2
• 45% of heavy side firms reported that sales fell between Q1 and Q2. However, 20% of light side firms, on balance, reported that sales rose between the first and second quarters of 2012.
• 6% of heavy side manufacturers, on balance, reduced headcount in the year to Q2. 8% of light side firms, on balance, increased employment over the same period. However, employment remained static for the vast majority of firms.
• 45% of heavy side manufacturers and 73% of light side manufacturers invested in product improvement.

The CPA said that as public sector investment continued to decline, there was no sign of any private sector recovery to offset these cuts, leaving the sector with very little optimism for recovery in the near future.

Noble Francis, CPA economics director said: “The position for construction in the UK is now looking very bleak indeed, as this is the fourth such fall in the past five quarters. This survey brings together the position from all parts of the construction supply chain and the fact that these findings are reflected throughout the industry should send a stark message to the government that the current situation is really beginning to hurt.

“The government has rightly recognised that construction is a key driver for economic recovery. Therefore, government emphasis must be focused on immediate construction work throughout the country, much of which has already been identified. But this will require actual investment to replace the rhetoric that has, of late been all prevalent.”

Stephen Ratcliffe, UK Contractors Group director, said: “Declining public sector spend and a lack of confidence amongst private investors, means action is urgently needed to kick-start the construction economy. UKCG is working with government to help speed-up decisions on school building and other major projects, and ensure capital investment benefits all parts of the UK - not just London and the South East.

“Recent announcements on infrastructure guarantees and rail investment have been welcome, but we also need‘shovels in the ground’ today. More resources could be directed to social housing and repair and maintenance projects - these are labour intensive and can be got off the ground very quickly.”

Julia Evans, chief executive of the National Federation of Builders, said: “The country is basking in the feel good factor of the Olympics which aims to inspire a generation. However, with higher costs, rising numbers of insolvencies, falling output, lower demand and rapidly depleting skills the construction industry is in danger of losing an entire generation of talent.

“While investment in infrastructure may deliver results in the medium-term, the government must ensure that its latest Funding for Lending scheme provides the near-term boost that will fuel growth.’