Construction sector loses momentum in January

Author: ross sturley cimcig

January  data  from the Markit?CIPS Construction Sector Outlook revealed  a slowdown in construction sector growth, with business activity and incoming new work both expanding at weaker rates than at the end  of  2016.  Despite  this,  survey respondents signalled that confidence regarding the year ahead outlook picked up to its strongest since December 2015,  largely  reflecting  new  project  starts  and  a resilient economic backdrop. This contributed to the fastest rise in employment numbers since May 2016. 

Meanwhile, exchange rate depreciation against the euro and the US dollar resulted in the strongest rate
of input cost inflation since August 2008. The seasonally adjusted Markit/CIPS UK Construction Purchasing  Managers’  Index (PMI) registered 52.2 in January, down from 54.2 in December. As a result, the headline index signalled the weakest rise in overall business activity since the post-referendum recovery began in September 2016.  All  three  sub-sectors (housing, commercial
and civil engineering) recorded softer rates of output growth in January. Although housebuilding remained the best performing category, the latest expansion was the weakest for five months.     

Slower growth of business activity largely reflected a moderation in new order gains at the start of 2017. The  latest  rise  in  new  work  was the least marked since October 2016. While s
ome construction firms commented  on  a  boost  to  sales  from  improving domestic  economic  conditions,  there  were  also reports citing subdued willingness to spend among
clients in January.       

There  were  more  positive  trends  in  terms  of  staff hiring across the construction sector at the start of 2017, which survey respondents mainly attributed to planned  project  starts  during  the  coming months.

The latest increase in employment numbers was the fastest for eight months, while sub-contractor usage rose at the steepest pace since December 2015.       

Stronger  job  creation  also  reflected  a  sustained improvement    in    business    confidence    among construction companies in January. More than half of the survey panel (51%) forecast a rise in business activity  over  the  next  12  months,  while  only  7% anticipate   a   reduction.   The   index   measuring construction firms’ year-ahead expectations has now picked up in five of the past six months. Meanwhile, latest data indicated a modest rebound in input buying in response to
increased workloads and  forthcoming  project  starts.  This  resulted  in greater  pressure  on  supplier  capacity,  with  lead times from vendors lengthening to the largest degree
since June 2015.      

Average  cost  burdens  increased  at  the  steepest pace  for  almost  eight-and-a-half  years in January. This was widely linked to rising prices for imported materials at the start of 2017.

Tim Moore, Senior Economist at IHS Markit and author of the Markit/CIPS Construction PMI,
said: "UK construction firms experienced a subdued start to 2017, with all the key categories of activity losing momentum. While housebuilding retained its position as the fastest growing part of the construction sector, the  latest  upturn  was  the weak est since the post-referendum rebound
emerged in September 2016.

“New business volumes also expanded at a softer pace in January, but there were more positive trends
in  terms  of  staff  hiring  and  business  optimism regarding the year-ahead outlook. The latest survey
revealed  an accelerated rise in payroll numbers at construction companies, as well as the fastest upturn in  sub-contractor  usage  since  the  end of 2015.“