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01 / THE STATE OF PLAY

There were some positive signs from the construction sector in July, with activity contracting at its slowest rate for 16 months. Moreover, the residential activity index returned to growth for the first time since January 2008, posting 51. The activity indices for both the non-residential and civil engineering sectors also rose, but remained below the 50 mark.

Panellists reported that insufficient demand continued to have an impact on activity but financial constraints were seen as less of an issue than earlier in the year, although they still had an effect.

Orders remained below average for the time of year, but tender enquiries continued to increase and the index edged up further to 53. The improvement in tender enquiries suggests that projects may be beginning to trickle through again as some degree of confidence returns to the economy. There was a strong rise in the civil engineering tender enquiries index, which jumped to 69. However, firms still expect to cut tender prices over the coming months in order to win work.

Although the survey suggests that things are looking a little better on the activity front, the same cannot be said for jobs – the employment prospects index was unchanged at 37 in July, as firms remain pessimistic about staffing levels over the coming months. On an individual sector basis, the residential employment prospects index fell back to 39, although this still suggested that firms in the sector were slightly less negative than in the non-residential and civil engineering sectors.

02 / LEADING CONSTRUCTION ACTIVITY INDICATOR

The leading construction activity indicator shows that construction activity will continue to decline over the next couple of months, albeit at weaker rates. The leading indicator is expected to rise further to reach the no-change mark of 50 in September.

The indicator uses a base level of 50 – an score above that level indicates an increase in activity and below a decrease.

See attached graphic

03 / LABOUR COSTS

More than half of building companies (52.6%) reported that labour costs were lower in July than they had been in the same month a year ago. However, almost a quarter reported an increase of between 2.5% and 5%, and nearly 16% indicated that their labour costs had risen by more than 7.6% during the year. This strong variation was similar to the pattern three months ago, although the proportion of firms reporting falling labour costs has increased.

The picture was more clear cut for civil engineering firms – 60% of respondents indicated that labour costs had fallen compared with a year earlier, and 40% reported that costs had risen by between 2.6% and 5%. This was a strong shift from three months ago, when just 25% of companies experienced falling labour costs.

See attached graphic

04 / REGIONAL PERSPECTIVE

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.

The indicators in all 11 regions rose in July, although East Anglia’s was the only one above 50. However, the South-east’s indicator rose five points to the no-change mark of 50 – the first time it has been out of negative territory since July last year. A two-point increase took East Anglia’s reading to 57.

The indicators in Wales and the North-west increased by six points in July, to 48 and 37 respectively, but the North-west’s was still the weakest across all 11 regions. The East Midlands, South-east and South-west also showed strong increases, with each regional indicator rising five points.

The North edged up three points to 47, following a drop in the previous two months. The indicators for Yorkshire and Humberside and Scotland also rose by three points to 42 and 47, respectively.

The UK indicator, which includes firms working in more than five regions, was two points higher at 45 in July.

See attached graphic