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01. The state of play

Downbeat figures from Experian Business Strategies’ contractor survey in March are the latest in a series of pessimistic results from industry surveys. The construction industry’s unprecedented run of growth had to come to an end eventually and in March, it did.

The national activity index, amalgamating responses from building and civil engineering firms, fell to its lowest level since 1996: a four-point decline took it to 48.

Forward-looking indicators were also weaker than we have become accustomed to. The orders index declined by seven points to 55 and the tender enquiries index hovered just above the all-important 50 mark.

As you might expect, Housebuilders were hit hardest. The residential activity index slipped seven points to 43, a level not seen since October 1992, and employment prospects in the sector were particularly weak. Although they continued to be quietly optimistic about their level of orders and tender enquiries, housebuilders’ optimism failed to match that of their civil and non-residential counterparts.

Civils firm’s activity index did rise by three points, but at 46 it remained relatively low nonetheless. Non-residential respondents have, in the main, managed to keep their activity levels up.

Many firms have accumulated a backlog of work, and that is now helping to sustain activity levels. Forward-looking indicators for the sector are stronger than for the residential or civil sectors, but they are considerably weaker than at this time last year.

02. Leading construction activity indicator (see graphic at bottom)

Experian Business Strategies’ Leading Activity Indicator, a short-term industry forecasting model, predicts that industry conditions are unlikely to improve in the next three months.

Having dropped to its lowest level since April 1996 in March, the indicator is expected to jump to 50 in April where it is set to remain.

The leading activity indicator also uses a base level of 50 – above that level shows an increase, below that level a decrease.

03. Work in hand (see graphic at bottom)

Firms in all three sectors reported a contraction in their work-in-hand buffers in March. Three months ago, when the question was last posed, most firms in all three sectors reported work-in-hand of between three and six months, with a significant proportion of firms having a six-month cushion.

In March, however, the greatest proportion of firms in all sectors reported work-in-hand levels of three months or less. Civil engineering firms were affected most, with almost 90% of respondents reporting less than three months. Non-residential and residential firms’ confirmed workloads generally spanned a longer horizon than their civil counterparts.

04. Regional perspective (see graphic at bottom)

Regional composite indicators, which incorporate current activity levels, the state of order books and the number of tender enquiries received by contractors, provide a measure of the relative strength of construction in each UK region. They paint a mixed picture for March.

At the top end of the scale Northern Ireland’s index held up surprisingly well. It declined by one point to 76, exceeding 70 for the third consecutive month. At the other end of the scale the West Midlands’ indicator fell by two points to 49.

The relative strength of the regional indicators is somewhat surprising considering how subdued the industry was nationally in March. By their very nature regional indicators report only on firms that operate locally. Firms that operate nationally are excluded from this analysis, possibly highlighting that these generally larger firms have been first to encounter tougher operating conditions.

Of the remaining regions, five experienced a rise in their composite indicators, the largest of which was in Wales. Three recorded a fall in their indicators and the composite indicator for the East of England was unchanged at 50.

The composite indicator for the UK fell by three points to 60.