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01 / The state of play

Conditions in the construction sector remained tough in October, with activity levels declining sharply and order books once again sickly. The activity index was unchanged at the record low of 33, the eighth consecutive month it has been below 50. Unsurprisingly, considering weakening demand and falling house prices, the residential sector once again saw the most severe contraction of activity, although it was closely followed by civil engineering.

The tender enquiries and new orders indices reveal a bleak outlook for the sector. The new orders index remained unchanged at 45, while the tender enquiries index reached an all-time low of 38, suggesting that there is unlikely to be any rise in activity in the near future. The bad news just keeps coming for the residential sector – the residential orders index fell to 37, its lowest level since December 1992.

The gloomy outlook for employment in the sector is set to continue, as firms expect no real improvement in conditions for the foreseeable future. This pessimism was reflected in the employment prospects index, which fell further and has now plummeted 26 points in just 10 months.

Firms are becoming increasingly desperate to get their hands on whatever work they can, even if this means squeezing their already slim margins. Evidence of this is in the tender price index, which fell eight points to 36, suggesting that firms overwhelmingly expect to reduce their prices over the coming months.

02 / Leading construction activity indicator

The Experian Business Strategies’ Leading Activity Indicator predicts another rough quarter for the construction sector. Activity is expected to contract in each of the next three months, although the index is expected to edge up to 34 in December. The Leading Activity Indicator uses a base level of 50 – an index above that level indicates an increase in activity, below that a decrease.

 

 

03 / Labour costs

On average, civil engineering firms continue to experience sharper rises in labour costs than their building counterparts. About 21% of civils respondents reported annual labour cost inflation of more than 7.6%, compared with no respondents three months ago. However, the same proportion, 21%, indicated that their annual average labour costs fell. Annual average labour cost inflation was reported to be between 2.6% and 5% by 36% of civil engineering firms.

The majority, 59% of building firms, reported annual average labour cost inflation of between 2.6% and 5%, and just 17% said labour costs increased by more than 5%.

See graph attached.

04 / Regional perspective

Experian Business Strategies’ regional composite indicators include 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.

The composite indicators declined across seven of the 11 regions in October, and the North was the only region with a reading of above 50.

The North also had the largest increase in its index, which rose two points to 62, a 12-month high. The East Midlands was the only other region to register a rise in its index, but remained well below 50 at 39. The indices for the West Midlands and East Anglia remained unchanged in October.

The Yorkshire and Humberside index fell six points to 34, while Wales’ index plunged five points to 46. The indices for Scotland, Northern Ireland and the North-west all fell by three points. The North-west index recorded a record low of 26 and remained the weakest region in the UK. The South-east and South-west indices recorded marginal falls to 40 and 46 respectively.

For UK contractors overall, the indicator rose by just one point to 50, following two consecutive months of decline.

See graph attached.