Construction Industry Focus Survey. Volume 27 Issue 2 November 2017

Transcription

1 Construction Industry Focus Survey Volume 27 Issue 2 1

2 CONTENTS Executive Summary 1 1. Leading Activity Indicator 1 2. Activity by sector and constraints Residential, Nonresidential, Civil Engineering 3. Orders and Tenders 4 4. Tender prices, Employment 4 5. Labour Costs 5 6. Regional Analysis 6 7. UK Macro summary 8 Page 2

3 Executive Summary The activity index for October continued to suggest positive developments in contractors workloads, standing at 58 points. It has gone down by two points relative to the previous month s figure, but is still the second highest value the index has marked since June In the next four months the Leading Activity Indicator is expected to initially increase marginally before falling down more notably to just above the nogrowth point limit. Orders and tender enquiries remained in positive territory despite the negative changes in their respective indices in October. The orders index dropped 11 points, returning to its July level of 63 points. The tender enquiries index was down to its June level after decreasing by four points to 58. The sectoral orders indices moved down for all groups in October. The nonresidential index was in the lead of the negative pack, losing 11 points on its September level to stand at in October, followed by the civil engineering index, dropping by ten points to 62, and the residential index, down by nine points to 64 in October. The employment prospects remained in positive territory for a third consecutive month. However, the index pointed towards a deceleration it was estimated at 57 point in October, 5 points down on September. The UK composite indicator lost 3 point to stand at 68 in October, which marked the 13 th month in which the indicator is above negative territory (neutral in June). On a regional level, only 2 regions marked positive developments in their indices Wales moved to neutral territory, while Scotland continued gaining momentum. Among the remaining nine, seven were in positive territory, North West fell below the neutral level of points, and West Midlands moved further into negative territory. Leading activity indicator (Monthly) Index, s.a Leading activity indicator (Smoothed) A measure greater than indicates an increase in activity Experian's Leading Construction Activity Indicator incorporates a range of factors to assess the construction industry s prospects over the next quarter. The indicator is put together using information about past levels of activity, orders and tender enquiries. The indicator uses a base level of above that level represents an increase in activity, below that level a decrease.

4 Activity Overall Construction Activity, Total, Repair and Maintenance Total Activity Index, s.a R&M activity The total activity index for October continues to indicate growth in the sector, standing at 58 points, down by two points on September figures. The R&M index shows a similar development. It remains above the nogrowth point limit and close to July figures at 54 points, six points down on the previous month A measure greater than indicates an increase in activity Construction Activity by sector Sector Both residential and nonresidential activity remain in Index, s.a. 80 Residential Nonresidential Civil Engineering positive territory for October, as their indices posted values of points. The residential index fell marginally by two points, while the nonresidential activity index increase by the same amount. The activity index for the civil engineering sector points at a notable deterioration in October, falling by 32 points to 45 and going below the nogrowth zone. 20 A measure greater than indicates an increase in activity

5 Activity Constraints The share of agents facing constraints in the sectors in October has increased relative to September. Just under a third of respondents reported no constraints over their activity, down by almost 11 p.p. since September. On the other hand, the shares of those encountering financial and miscellaneous constraints have risen by one and five p.p., respectively, to 11% and 13%. Insufficient demand continues to be a serious problem for the sector, being marked as such by 26% of the respondents, followed by labour shortages (12% of the respondents). Material/equipment shortages also seem to have impacted on respondents activity, gaining a share of 3% from none in the previous month, whereas weather conditions share remains closeto last month s (2% of respondents). Activity Constraints % Respondents Oct Nov Dec Jan17 Feb Mar Apr May Jun Jul Aug Sep Oct No Constraint Insufficient Demand Bad Weather Labour Shortage Material/Equipment Shortage Finance Other factors

6 Orders and Tenders Both orders and tender inquiries continue to grow in October. However, their respective indices have changed direction and headed downwards. The orders index was down by 11 points on September, returning to its July level of 63. The tender enquiries index decreased by four points to 58, the same as June s figure. Orders Index Tender Enquiries (sa) 80 Orders and Tender enquiries over time Index, s.a Orders by Sector over time Residential Nonresidential Civil Engineering A measure greater than indicates an increase in orders/tenderenquiries 20 Orders in all main sectors are in positive territory, but the indices point at a slowdown in the last month. The index for nonresidential orders saw the largest decrease in October, by 11 p.p. to points, followed by the civil engineering index, down by ten points to 62, and the residential orders index, down by nine points to 64. A measure greater than indicates an increase in orders 20 The tender (enquiry) indices suggest deceleration in Index, s.a. 90 Tenders by Sector Residential Nonresidential Civil Engineering growth for all sectors in October. The largest change was 80 recorded in civil engineering, with the sector s index falling to 68, down by 18 points on September s figure. The non residential enquires index ticked down by one point to, while the residential index fell by 5 points to Tender Prices 10 A measure greater than indicates an increase in tenders Index, s.a Tender prices (monthly) Tender prices (3 month moving average) The tender prices index decreased by four points and posted a value of 65. Despite the downward movement, the index remains firmly on the expansionary side, with October marking the 15 th month of a tender price index of above points. 25 A measure greater than indicates expectations of an increase in tender prices

7 EmploymentProspects Index, s.a Employment prospects (monthly) Employment prospects (3 month moving average) Employment prospects marked their third month of growth. However, the index dropped 5 points to 57 in October, following two months of increases. The posted figure is the third highest since the beginning of the year, preceded by 62 in September and in March A measure greater than indicates an improvement in employment prospects Labour Costs As UK inflation reached a fiveyear high in the past two months, the increase in labour costs was renewed. In October, 53.7% of the respondents reported labour cost increases between 2.6% and 5%, while 29.3% estimated the growth to be above 7.6%. The share of respondents who have pointed out a decrease relative tojuly has shrunk by 3/4 to 2.4%, while those reporting increases up to 2.5% have expanded to 14.6% of the respondents. % of respondents 100% 90% 80% % % % % % 20% 10% 0% Labour Costs Residential and Nonresidential Oct16 Jan17 Apr17 Jul17 Oct17 <0 0< > Labour Costs Civil Engineering % of respondents 100% 90% % % 14.3 % % % % 20% % 0% Oct16 Jan17 Apr17 Jul17 Oct17 <0 0< >7.6 Developments in labour cost changes in the civil engineering sector are also apparent. Relative to July, the share of respondents reporting increases in labour costs in October has shrunk from 100% to 71.4%, with the remaining 28.6% reporting a decrease. The same share of respondents (28.6%) report labour cost increases of above 7.6% and another 28.6% increases ranging between 2.6% and 5%. The remaining 15.3% have experienced an increase in labour costs between 5.1% and 7.5%.

8 RegionalAnalysis Regional Composite Indices Oct16 Nov Dec Jan17 Feb Mar Apr May Jun Jul Aug Sep Oct North East Yorkshire & Humbersid East Midlands East Anglia South East South West West Midlands North West Wales Scotland Northern Ireland UK Source: Data ONS, Forecasts Experian

9 RegionalAnalysis Experian s regional composite indices incorporate current activity levels, the state of order books and the level of tender enquiries received by contractors to provide a measure of the relative strength of each regional industry. In October, the general trend was a decrease in the composite index. Only two regions enjoyed an increase in their respective indices. Despite the negative developments, nine regions remained in positive territory. The composite index for West Midlands was down by four points to 31 in October, making this the fourth consecutive month within negative territory. North West was also below the nogrowth limit in October after its index dropped eight points to 48 points. The Yorkshire & Humberside index also recorded an eightpoint decrease on September figures and was estimated at 66 in October. A measure greater than indicates an increase in Regional Construction and Activity and Outlook. A measure less than indicates an decrease in Regional Construction and Activity and Outlook. The two regions which saw positive changes in their respective indices in October were Wales and Scotland. Wales index grew by two points to put it in neutral territory at points. Scotland posted a three point increase in the index and reached 63. North East kept its leading position followed by East Midlands with indices of 79 and 69, respectively, down by five and three points on September s figures. Changes in the indices for the remaining regions varied between two and four points. The UK composite index was estimated at 68, a three point decrease on September figures. Despite that, the index is at its second highest position since March 2016.

10 UK Macro Summary UK consumer prices: release Consumer price inflation (CPI) was unchanged at 3.0% in October, matching September s fiveyear high. Rising prices for food, and, to a lesser extent, recreational goods provided the largest upward contributions. The inflation rate for food and nonalcoholic beverages rose to a fouryear high of 4%, from 3% a month earlier. This was offset by a fall in motor fuel prices. The price of motor fuels, has been a major source of inflationary pressures since mid2016, fuelled by an increase in global oil prices and the fall in the value of the pound. However, since early 2017, fuel prices have fallen slightly overall and their contribution to the rate of inflation has reduced. The latest data suggests that the postbrexit vote surge in UK inflation may have peaked at 3%. Since June last year, sterling s weakness has driven up the cost of imports and the domestic prices of goods and services that are heavily dependent on imports, such as food, clothing and fuel. Although growth in food prices continued to accelerate, goods inflation has stabilised at just over 3% and there are signs that pipeline pressures have begun to ease somewhat. The headline rate of inflation for goods leaving the factory gate (output prices) slowed from 3.3% in the year to September, to 2.8% in October. Price growth for materials and fuels (input prices) also decelerated from 8.1% to4.6%. We expect a steady easing in overall inflation in the coming months, assuming price rises in the other component, services, remain stable, as they have been since the start of the year, at broadly 2.7%. Further increases in the global oil price, or a renewed weakening in sterling present key risks to the upside. In the meantime, with employee pay growing by 2.2%, real incomes continue to fall, constraining consumer spending and economic activity.

11 Our economic forecasting expertise Experian's team of 20 economists is a leading provider of global, national, regional and local economic forecasts and analysis to the commercial and public sectors. Our foresight helps organisations predict the future of their markets, identify new business opportunities, quantify risk and make informed decisions. For more information, visit Experian Market Intelligence Group Would you like to understand how your credit portfolio compares to your peers and how it is likely to be impacted by changes in lending policy, market competition and the economy in the future? Our experts in economics, credit risk, construction, market analysis and portfolio benchmarking combine to provide an indepth understanding of the market and economic context in which you manage your business both now and in the future. How we can help you: An independent unbiased view of the market based upon quantitative analysis of data. Benchmark your portfolio against your peers, both now and forecast into the future Provide economic forecasts specific to your sector Develop accurate business case(s) for entry into new markets Assess future market risk and predict potential economic pressures at a granular level Highlight future revenue opportunities Meet regulatory requirements for stress testing and loss forecasting Experian helping organisations understand the market, economy and future changes in household and business finances. Construction Futures is a part of Experian s Economics Team, specialising in economic analysis of the construction and related sectors, and working with clients in the private and public sectors to provide a better understanding of the industry s dynamics. Contact James Hastings Head of Construction Futures E: James.Hastings@experian.com T: 44 (0) James has specialised in research and analysis of the construction industry for the past 24 years, both at the National Economic Development Office and as a founder member of Construction Forecasting and Research, with whom he has filled a number of roles over the years. He is now head of construction futures in Experian s Economics Unit and currently sits on the Department for Business, Innovation and Skills Consultative Committee on Construction Industry Statistics. Sonya Patel Senior Economist E: Sonya.Patel@experian.com T: 44 (0) This report has been prepared for publication by the Construction Futures team, which is part of Experian s Market Intelligence Group, utilising data from the European Commission s harmonised business survey for UK construction. Experian is indebted to the European Commission for its sponsorship and partfunding of the survey. The Construction Industry Focus draws on the monthly survey of construction activity, which is part of the European Commission s harmonized series of business surveys undertaken on their behalf in the UK by Experian. The survey is conducted by monthly questionnaire among 800 selected firms throughout the UK (including Northern Ireland), and the analysis is broken down by size of firm and Government Office Region. The analysis is also weighted to reflect the size of the respondents. For the purposes of the Construction Industry Focus, the survey data is seasonally adjusted and turned into an index in which the base line is. A value over indicates an increase in the indicator being surveyed, while a value under indicates a decrease. Contact our team on: T: 44 (0) or W: w ww.experian.co.uk/economics ISSN:

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