The Markit/CIPS UK Construction PMI slowed to a 13-month low in November but more positively it is still the 19th consecutive month of being considered in growth.
The good news was that job creation remains strong and UK construction companies indicated a positive expansion of business activity. However, construction and building products manufacturers are still under pressure with demand still exceeding supply and lead-times suffering. Although frustrating, we at Pinnacle Consulting take the view that it is better there is demand than not.
All three broad areas of construction activity registered reduced rates of expansion in November, led by a marked slowdown in civil engineering. The latest expansion of civil engineering activity was the weakest since July 2013. Meanwhile, residential building was the strongest performing area of activity in November. However, house building and commercial construction activity both expanded at the least marked rates since October 2013.
November data pointed to a rise in new business volumes for the 19th successive month. Reports from survey suggested that strong competition for new work and greater uncertainty about the economic outlook had weighed a little on client confidence.
Great News for Employment
Despite reduced rates of output and new business growth, the latest survey pointed to steady and strong job creation across the construction sector and the pace of employment growth picked up a little since the previous month and was still relatively close to the survey-record high seen in July.
Meanwhile, increased workloads contributed to a solid rise in sub-contractor usage in November. Latest data also signalled the fastest rise in sub-contractor charges since the survey began in April 1997.
Building and construction materials still in short supply
Survey respondents generally commented on strengthening demand for construction materials and pressures on capacity at suppliers. Latest data also pointed to a steep lengthening of vendor delivery times, although the rate of deterioration was the least marked since June 2013.
Looking ahead, construction firms remain optimistic about the prospects for output growth at their units over the year ahead.
There was also evidence of improving underlying demand, strong pipelines of residential building projects and a general rise in new invitations to tender across the UK regions.
However, the overall degree of optimism eased slightly in November to a 13-month low, with some construction firms citing concerns among clients regarding the wider economic outlook.
Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:
“The sector continues to enjoy strong recovery and higher levels of activity, even if the rate of expansion has slowed a little compared to recent months.
“Led by an increase in residential housing activity,new orders and the accompanying rise in levels of staffing, the sector’s growth is no longer confined to the south of the country and is becoming more widespread.
“The flipside of this coin is the rise in demand for construction materials, which has resulted in capacity issues amongst suppliers. As the UK Government announces more detail around road expansion plans, this may add to the pressure on suppliers and their ability to meet the needs of the sector. Though delivery times from suppliers have lengthened, procurement and supply chain managers paint a picture of general optimism amongst the economic doomsayers as the index remains well above the no change mark.
“The one dark spot on the horizon is the danger of prolonged skill shortages across the construction sector. As sub-contractors are currently in high demand and becoming increasingly costly, the recruitment difficulties experienced by many firms in the sector may need to be addressed sooner rather than later; as the sector has some catching up to do to develop more available skilled labour.”