The tracker: Same time next month …?

01 / THE STATE OF PLAY

In February, the rate of decline in construction activity eased from the previous month as the index rose by two points to 48 – the highest reading for two years. However, although the tender enquiries indices for all three sectors (residential, non-residential and civil engineering) were in positive territory, the orders indices remained below the no-change mark of 50. This suggests that, despite increasing enquiries across firms, the level of orders were below normal for the time of year.

Not surprisingly, this has led to survey respondents anticipating lowering the prices charged to customers in order to win more business over the coming months. The tender prices index edged down one point to 41 in February, below the no-change mark for the twentieth consecutive month. Further proof of the difficulties being faced by firms was provided by the employment prospects index which crept down one point to 36. This suggests that firms expect to continue reducing their workforce in the next quarter.

On a brighter note, the proportion of firms reporting no constraint on activity rose for the third consecutive month in February to 21%. However, insufficient demand remained a hurdle for more than half of those surveyed (51%), while finance was a problem for 15%. Improving weather conditions meant that only 10% of the respondents found it to be an activity constraint in February, a significant improvement from the 30% who said the same in December. Unsurprisingly, labour shortage was not a constraining factor for anyone.

02 / LEADING CONSTRUCTION ACTIVITY INDICATOR

The leading construction activity indicator suggests that the industry will continue to see a decline in activity over the coming quarter, albeit at a slower pace. Having stabilised at 48 in March, the index is expected to edge up one point in each of the following two months, reaching the no-change mark of 50 in May. (View graph below story)

The leading activity indicator uses a base level of 50 – a value above that level indicates an increase in activity, below that a decrease.

03 / LABOUR COSTS

Of the civil engineering firms surveyed, a quarter reported annual material cost inflation of less than 2.5%, while half indicated price rises of between 2.6% and 5%. Furthermore, 12.5% experienced a cost increase of between 5.1% and 7.5%, compared with none seeing the same three months previously. (View graph below story)

Almost 43% of the building firms surveyed said material costs had risen by between 2.6% and 5% in February, up on the one-third who felt the same way in December 2009. However, a fifth of respondents experienced material cost deflation, compared with 43% three months earlier. It was also noted that 22% had seen prices increase by more than 7.6%, a much higher proportion than the 5% who reported the same in December 2009.

04 / REGIONAL PERSPECTIVE

Experian Business Strategies’ regional composite indicators incorporate current activity levels, the state of order books and the number of tender enquiries received by contractors to provide a measure of the relative strength of each regional industry. (View graph below story)

The indicators for four of the 11 regions remained unchanged from the previous month in February; the East Midlands (55), South-east (48), East Anglia (44) and Scotland (50). Meanwhile, only the West Midlands and Northern Ireland saw their indices decline month on month, the former by 10 points to 35 and the latter by three points to 52.

On the upside, the North’s construction industry entered a period of expansion in February for the first time in 14 months as the index rose by 13 points to 58. Furthermore, the indices for the South-west and Wales continued to remain in positive territory and saw a quickening in the growth rates from January. The index for the former rose by three points to 57, while the latter increased by eight to 67.

Despite the indicators for Yorkshire and Humberside and the North-west rising by two points to 43 and four points to 36 respectively, this simply suggested a slowdown in the rate of contraction in February.

The UK indicator, which includes firms working in more than five regions, rose two points to 57. This was the highest level since March 2008.