Construction Sector Contraction Slows to Lowest Rate for Two Years

According to the latest seasonally adjusted CIPS/Markit Construction Purchasing Managers’ Index (PMI®), released today:

• The headline number was 48.6 in January, up from 47.1 in December. A figure below 50 indicates contraction. HOwever, the January figure represented the smallest decline in activity since the 23-month contraction commenced.
• The level of incoming new orders decreased for the second consecutive month in January. Although only moderate, the pace of contraction accelerated to the sharpest since last June with subdued confidence, funding constraints and competitive pressures also acting as a drag on new workloads.
• Sub-contracting declined on the month, in line with the trend starting December 2007. The availability of sub-contractors was reported to have improved, whilst the rates they charged fell at a faster pace.
• The quantity of building materials purchased by UK constructors fell for a twenty-third successive month in January and was the sharpest drop since May 2009. Anecdotal evidence suggested that many firms had opted to deplete their existing inventories before ordering new stock.
• Input prices fell for the first time since September 2009, amid reports that a number of suppliers had cut their charges in response to competitive pressures.
• Around 60% of firms anticipate growth over the next 12 months. Improving economic conditions, planned marketing campaigns and the restarting of projects previously put on hold all being cited as reasons for positive expectations.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said:

“Construction continues to be the worst performing sector of the UK economy – struggling in the face of credit supply shortages and overall economic uncertainty. Purchasing managers said the widespread chaos caused by the snow in January didn’t help an already fragile industry with new orders disappointingly low.

“Though the rate of decline slowed, competition is still intense. Operating conditions are tough and firms are now measuring performance from such a low base level that there’s a general consensus things can’t get much worse. Particularly disappointing is the slowdown in house building as this has been one of the few bright spots in recent months.”

Press Release: Markit Economics [PDF].

Note: The index is a “diffusion index”, it is calculated by adding together the percentage of respondents that reported an improvement plus half of the percentage that reported no change. Results will vary around the 50.0 “no-change” level. Readings above 50.0 signal an improvement, readings below 50.0 a deterioration. The greater the divergence from 50.0, the greater the rate of change anticipated by respondents.

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