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01 The state of play

Faltering demand and less liquid financial markets helped to make April’s survey response the weakest since the last big construction industry recession back in 1992.

Work was much harder to come by and many respondents reported a contraction in their activity level during the month. Order books are holding up well so far, but with enquiries sharply down, how long this can be maintained remains to be seen. Redundancies are being reported on a weekly basis and so it isn’t surprising that the employment index fell to its lowest since January 1996. After 13 years of continuous growth, in which real industry output rose 32%, we may be witnessing the beginning of the end of a golden era.

Civil engineering continued to be the most affected sector but the residential and non-residential sectors deteriorated noticeably. All three sectoral activity indices stood below 50 in April, suggesting an across the board contraction. Civil engineering’s orders index fell to 40 and its tender enquiries index was even weaker, at 38.

Although responses from civils firms were by far the least optimistic, residential companies also reported a drop in enquiries. Residential and non-residential orders, however, continued to hold up. The residential activity index rose two points to 45 and the non-residential activity index declined eight points to 44. Firms in all three sectors said they intended to scale back their employment levels in the next three months.

02 Leading construction activity indicator

Experian Business Strategies’ Leading Activity Indicator, a short-term industry forecasting model, predicts that construction activity will continue to decline in the short term. The indicator is then expected to rise steadily throughout the forecast period. In April the indicator reached its lowest level since November 1992.

The Leading Activity Indicator also uses a base level of 50 – above that level shows an increase, below that level a decrease.

See attached graphs.

03 Labour costs

Fifty-seven per cent of building firms reported an annual labour cost inflation of between 2.6% and 5%. For 23% of respondents, labour cost inflation was significantly higher, running at more than 7.6%. Only 6% of firms suggested that wages were rising at less than 2.5%.

Civil engineering firms faced much stronger labour cost inflation than their building counterparts. Fifty-six per cent of respondents said inflation exceeded 7.6%, a significantly higher proportion than last quarter when less than 20% of responses fell into this band. Thirty-eight per cent of firms reported that labour cost inflation was running at between 2.6% and 5%.

Three months ago most building and civil engineering firms reported that their labour costs were rising at between 2.6% and 5%. Only 16% of building firms fell into the highest category of more than 7.6%.

See attached graph.

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. It paints a more subdued picture than in recent months, but most regions remain above 50, which means that their workload is still going up.

Northern Ireland once again topped the league table. A six-point fall was insufficient to take the top spot from the region and its indicator remained at 70. The scores for all other regions, with the exception of East Anglia, also took a tumble. The East Midlands’ indicator fell by three points, but at 60 it was sufficiently high to keep hold of second place. The North-east’s indicator fell by four points to 57 and Scotland’s indicators fell by two points, also to 57. Wales fell four points to 56, the South-west three points to 55 and the South-east three points to 51. East Anglia’s indicator bucked the trend, rising four points to 54.

The indicators for three regions stood below 50 in April. A three-point decline was sufficient to take the West Midlands’ to the bottom of the league table. Its indicator stood at 46.

The North-west’s indicator fell by one point to 49 and Yorkshire and Humberside’s by two points to 48.

See attached graph.