Construction Industry Slowdown Set to Continue

6 May 2008

Slowdown in construction has continued throughout the first quarter of 2008 according to the latest joint Trade Survey Report from the Construction Products Association and the Construction Confederation.  Yet, despite the uncertainties caused by the global economic conditions, there is still strong activity across some sectors, even though longer-term prospects appear more uncertain.

The hardest hit are those sectors involved in private housing and industrial activity as reduced economic growth has led to tighter credit availability and slower consumer spending. Conversely, work in public sector infrastructure, especially housing, health and education have remained active and is partially compensating for the sectors with poor growth. 

On the construction materials side, although heavy side manufacturers have suffered falls in sales during the previous two quarters, light side manufacturers still have high workloads despite the slowdown.  One factor of common concern among construction materials manufacturers at this uncertain time is that rising costs for both energy and raw materials are continuing to depress profit margins. 

Speaking about the survey, Noble Francis, Economics Policy Development Director at the Construction Products Association said:  “2008 sees the industry in a period of uncertainty as a result of the global economic slowdown that has considerably reduced UK economic growth forecasts, credit availability and consumer spending. The slowdown has impacted differently upon the construction sectors, with the private housing and industrial sectors hit hardest.

“The UK economic slowdown has led to decreases in forecasts of GDP growth, consumer spending, difficulties in credit availability and interest rates.  Consequently this has made for a difficult economic environment for the construction industry.  Building contractors have reported that output fell during the first quarter of 2008, the first fall for four quarters with a new balance of 14% of contractors reporting a fall in output for the industry as a whole.”

Stephen Ratcliffe, Chief Executive of the Construction Confederation added: “Given the general economic gloom and rising costs, it is not surprising that contractors are more uncertain about the future than they have been for some time.  Even so, the decrease needs to be set against the high levels of demand for construction in recent years. There are also sectors – notably civil engineering – where workload remains strong.”

Key survey findings are:

• Light side sales of construction products rose in the first quarter of 2008, reflecting the derived-demand from high levels of construction work in some sectors.
• Building contractors reported that output fell during the first quarter of 2008, the first fall for four quarters with a new balance of 14% of contractors reporting a fall in output overall.   However, there is considerable difference among the sectors.
• Total civil engineering workload remains strong, as does the employment of all the main categories of personnel within civil engineering.
• Product sales were higher in the first quarter of 2008 Q1 than during the final quarter of 2007. On balance, 27% of manufacturing firms reported that sales were higher than one year ago.
• Contractors are slightly more optimistic than during the last quarter, with a net balance of 25% of contractors anticipating an increase in work over the next quarter.
• Building contractors report than the level of work in hand in new build during the first quarter of 2008 weakened considerably, mirroring the results for contractors’ output
• Construction product manufacturers’ cost pressures rose once again, with a balance of 81% of construction product manufacturers reporting that there had been an increase in costs over the last year
• The increased energy costs lead to higher costs of extraction and input material costs.