Construction Caution Over Credit Crunch

Construction product sales have again risen during the third quarter despite recent financial upheaval, according to the Ernst and Young/Construction Products Association Activity Barometer, which is published today.

The third quarter of 2007 records a score of 73 compared to the record high of 80 in the second quarter.  Overall product sales are set to rise further during the fourth quarter, although the pace of growth is expected to moderate. The survey recorded a score of 66 for construction product sales during the next three months, firmly above the 50 ‘no change’ mark. 

Commenting on the results, Máren Baldauf, Economist for the Construction Products Association said:

"The Barometer findings indicate that the construction industry remains buoyant, with both heavy and light side firms seeing sales volumes ahead of a year ago.  However, year-on-year sales growth is set to moderate during the fourth quarter. Whilst this partly due to the strong finish to last year, it is also reflects greater industry caution in light of the current turmoil in financial markets.

"Heavy side firms have experienced an increase in sales during the third quarter. 

"The score of 65 shows that firms are benefiting from strong non-residential activity.  However, firms are more cautious for fourth quarter, with a lower score of 59 reflecting concerns over the new housing market.

"Light side firms are again the most optimistic, although the 85 score seen in the previous quarter is down to 82. 

"This index reading is still indicative of a positive market.  In particular energy efficient products continue to benefit from the high media profile of climate change and the carbon footprint. 

"Firms do report that margins remain under pressure, and light side manufacturers expect a further moderation in growth during the fourth quarter, with an index reading of 76 ". 

Dominic McAra, a Director in Ernst & Young’s Building Products team commented:

"The impact of the credit crunch is evident across a number of market sectors so a level of caution in this sector is understandable.  The fact that the crunch has not hit current sales is encouraging however.  

"It will be interesting to see whether the crunch impacts M&A in the sector, or whether those consolidators with funds in place are able to continue with their activities. 

"A number of the energy efficient products may still be sufficiently attractive to continue to attract investment ".