Press Release

Construction industry facing bleak 2009

5th February 2009

The construction industry is facing its sharpest decline for nearly 30 years and with little or no prospect of any turnaround in the short term, employment levels across the industry are expected to fall sharply throughout 2009. This is the stark picture according to the latest Trade Survey published jointly by the Construction Products Association and the Construction Confederation.

The Survey, which covers the fourth quarter of 2008 provides no respite from the current recession, with contractors and product manufacturing predicting that the decline experienced in 2008 will continue during 2009 as shrinking output and over capacity of construction activity will fall further over the course of a very difficult 2009.

Speaking about the survey, Noble Francis, Economics Director at the Construction Products Association said: "The Association's anticipates that the construction sector as a whole will fall 9 per cent during 2009, the sharpest fall in almost 30 years, with the private sector enduring the worst falls. Although product manufacturers experienced a very difficult 2008, declining demand combined both with rising energy costs and materials prices will continue to present an enormous challenge to the industry. Our survey suggests that the environment for product manufacturers is continuing to deteriorate and this is being felt by both light side and heavy side manufacturers.

"Product manufacturers have reported that employment fell in the past three months but expect a further fall in the year ahead. 86 per cent of heavy side manufacturers are reporting that employment levels had fallen, the fifth consecutive quarter during which employment fell. For the year ahead, 73 per cent of heavy side manufacturers, expect employment will fall further.

"Just 18 months ago, the main concern was whether the industry would have the capacity to produce the anticipated projects. However, this has dissipated and the main concern now is under utilisation of capacity both for contractors and manufacturers. In the last three months, only 32 per cent of contractors, reported that they were operating at 90 per cent capacity or greater, 18 months ago, this figure was 80 per cent."

Speaking for contractors, Manus Adamson, Executive Chairman of the Construction Confederation added: "On the contractors' side, construction appears to be suffering across most sectors with housing and industrial suffering the sharpest falls. More than 45 per cent of contractors reported that private housing and industrial output had fallen in the last quarter compared to a year earlier.

"Looking forward, industrial and housing are set to fall further but are anticipated to be joined by sharp falls in the commercial sector. 77 per cent of contractors in the latest quarter reported that their order books for industrial, private housing and commercial sectors had shrunk." The fall in demand has had a negative impact upon tender prices and, which combined with further increases in costs, has led to a sharp fall in profit margins."

The fall in demand across construction has led to falls in tender prices and with costs still increasing, profit margins have fallen further. The reduction in demand has also led to a fall in employment and capacity utilisation for both contractors and manufacturers. Contractors are now finding it relatively easy to attract trades to work on site, a sharp contrast from the picture just 18 months earlier, prior to the economic slowdown.

It is not only contractors suffering from under-utilisation. Product manufacturers also face similar concerns, with 50 per cent of light side firms and 41 per cent of heavy side firms, operating at below 60 per cent capacity. This has risen over the course of the past 18 and contrasts sharply with the trade survey in the second quarter of 2007 when no light side or heavy side firms reported that they operated below 60 per cent capacity.

With demand falling, over capacity within the industry increases the probability of further job losses. The more capacity that is removed in the short term, the more difficult it will be to recover in the longer term when the market recovers and the long term demands of housing, prisons, schools and hospitals must be met. Worryingly these are the worst figures this survey has recorded in nearly 20 years

Key survey findings are:

• 78 per cent of construction product manufacturers report sales to fall in Q1 compared to Q4 2008

• 91 per cent of construction product manufacturers report sales lower than in same quarter last year

• 82 per cent expect sales to fall in 2009 compared with 2008 and 75 per cent of these expect sales to fall by more than 5 per cent