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01 / The state of play

The latest survey of the industry showed the 21st consecutive monthly decline in construction activity in November, with the activity index falling four points to a seven-month low of 39 (see graphs 1 & 2 below).

However, performances varied across the sectors. Residential fared best in November, with its index rising four points to reach the no-change mark of 50. This was the first time that it had not shown a decline since January 2008. In contrast, the non-residential and civil engineering indices remained in negative territory, and rates of contraction in activity accelerated markedly. The non-residential activity index dropped nine points and the civil engineering activity index fell six points to 34.

Orders remained below normal for the time of year, but the index edged up two points to 43, its highest reading since July. The possibility of an increase in work over the coming months also seems likely, given that tender enquiries index rose eight points to 58. That said, anecdotal evidence suggests that the uplift in tenders may not necessarily translate into an increase in orders, not least because financial constraints remain as tight as ever.

Although many firms are trying to retain staff in preparation for a recovery, employment levels recorded their 23rd successive monthly contraction in November, with the index edging down to one point to 36 with a slightly increased rate of decline.

Bad weather remained an issue, with 7% of firms reporting it as a constraint. More than half of firms indicated that insufficient demand was a problem, while the proportion indicating no constraints fell further to just 16%.

02 / Leading construction activity indicator

The leading construction activity indicator indicates that construction activity will continue to contract over the next two months, albeit at weaker rates. The indicator will edge up in each month and reach the no-change mark of 50 in February.

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

(See graphs 1 & 2 below)

03 / Material costs

About 43% of firms reported an annual material cost deflation in November, in contrast to just 14% three months ago. In the same survey three months ago, 29% indicated that material costs had risen by more than 7.6% from the corresponding month of 2008; in November, the proportion was just 5%. Annual material cost inflation of between 5.1% and 7.5% was reported by 9.5% of firms, compared with a figure of 7.2% three months ago.

For civil engineering firms, 60% reported that material costs had fallen in November 2009 compared with the same month of 2008; this figure was 0% three months ago. No civil engineering firms reported inflation of more than 7.6% in November; the figure was 16.7% three months ago.

(See graph 3 below)

04 / Regional perspective

In November, five of the 11 regions showed a rise in their indicators. The strongest increase was in the West Midlands; its indicator rose 10 points to a 21-month high of 54. This is the first time it has been above 50 since February 2008.

Northern Ireland’s indicator rose six points to 43, its highest reading since July. Scotland and Yorkshire and Humberside also had an increase, rising to 43 and 35, respectively.

The South-west reported a two-point increase, taking the indicator to 50 – the first time the indicator had been at or above the no change mark since April 2008.

In contrast, the Welsh indicator dropped 10 points to 44, having been above the no-change mark of 50 in the previous three months. The North also saw a marked decline, falling nine points to 41, a 10-month low. The North-west remained the lowest of all the regions: it fell two points to 27.

The UK indicator, which includes firms working in more than five regions, edged down one point to 47.

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.

(See graph 4 below)