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01 - The state of play

The latest results from Experian Business Strategies’ monthly survey of contractors suggests activity continued to expand strongly in June after a flat spring. Three out of four of the indicators used to assess the state of the industry strengthened from May, namely activity, orders and employment. The activity index climbed two points to 58, its highest level since February 2006.

Responses from firms specialising in residential, non-residential and civil engineering were mixed in June. By far the strongest sector was civil engineering. After a weak performance in May, activity rose in June. Orders were significantly higher than they would usually be at that time of year and the number of tender enquiries received by contractors surpassed the figure for May.

As we have come to expect, the non-residential sector gave a strong performance in June. At 59, the activity index remained high and the orders index reached its best level since February 2005.

The residential sector was the only cloud in an otherwise clear sky. At 54, June’s residential activity index does not suggest that the sector is in immediate trouble. In fact, activity is likely to have expanded during the month. More worrying is the weakness of enquiries and employment.

Throughout 2006 employment prospects have been subdued for all three sectors – until that is June when there was a recovery in the non-residential and civil engineering sectors. Contractors were optimistic about employment prospects, and many looked to increase their headcount. Residential firms, in contrast, are far less likely to be recruiting.

02 - Construction activity indicators

Experian Business Strategies’ Leading Construction Activity Indicator clearly shows how activity in the sector faltered in March. Since then the recovery has been strong and most of the indicators suggest this is going to continue. Going forward, we are forecasting that the expansion in activity will continue at a similar rate to June.

The residential sector poses a risk to this forecast. If activity were to slow by more than anticipated, the short-term outlook for construction as a whole could be weaker.

The current strength of order levels and tender enquiries is instrumental to our projection and reflects respondents’ optimism about the future. The indices use a base level of 50 – values above that level indicate an increase, below that a decrease.

03 - Work in hand

With order levels at a relatively high level, it is not surprising that most respondents have a healthy number of projects in the pipeline. The outlook is bright for the non-residential sector, with only 22% of respondents having fewer than three months of work in hand.

The civil engineering sector has the highest proportion of firms with work in hand of more than six months. Work in the residential sector is slightly less abundant, with 43% of firms having less than three months work in hand. Compared with the situation three months ago, the outlook is significantly better for both the non-residential and civil engineering but marginally less so for residential firms.

04 - Regional perspective

All but one regions’ composite indicators stand significantly above 50 in June.

Scotland’s composite index, which stands at 71, topped the league table, although northern England came a close second with 70. Although such high values suggests a strong growth in activity, it is worth noting that both regions saw their indices decline marginally from May.

Elsewhere in the North, respondents were less confident. The North-west was the only region where the composite index showed that activity contracted during June. However, at 48 the North-west’s index climbed two points from May.

Five other regions’ composite indicators increased in June, namely Yorkshire and Humberside, East Anglia, the South-east, the West Midlands and Wales.

Apart from Scotland and the North-east, only two other regions’ indicators fell: the East Midlands and the South-west.

The UK contractors’ index incorporates responses from firms operating in more than one region during the month. Having stood at 73 in May, the overall index declined four point to 69 in June. So far this year, the UK contractors’ index has exceeded 70 in three out of six months.

The composite indicator combines activity, orders and tender enquiries over the past three months.