Construction output growth accelerates to a seven-month high in September

Output in the construction has reached a seven-month high accordingly the latest data released in the new Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) 

At 59.9 in September, up from 57.3 in August, the headline seasonally adjusted figure signalled a sharp and accelerated expansion of overall business activity and the reading was well above the long-run survey average (54.7) being the fastest increase in output levels since February. September data pointed to output growth across the all three of the sectors of the UK construction sector, monitored by the survey. 

Greater workloads and positive sentiment regarding the business outlook contributed to a sharp increase in staffing levels. However, new business growth continued to ease from June’s recent peak, with the latest upturn in new work the weakest for five months. 

Supply chain pressures easing
Meanwhile, construction companies indicated the least marked lengthening of suppliers’ delivery times since November 2010, which provided further evidence that supply chain pressures have subsided in recent months.

Meanwhile, the latest survey highlighted the least marked deterioration in supplier performance for almost five years, which some firms linked to greater stocks at vendors. September data also pointed to softer cost pressures, with the rate of input price inflation easing to a five-month low.

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Fastest rise in residential building for 12 months
House building remained the best performing broad category of construction activity in September. The latest expansion of residential building was the strongest for 12 months, which some survey respondents attributed to the launch of development projects that had been delayed earlier in 2015. Commercial construction activity also rose sharply in September, with the pace of growth accelerating to a seven-month high. Meanwhile, civil engineering activity increased for the fifth consecutive month and the rate of expansion picked up to its fastest since February.

Volumes of new work rose at a robust pace in September. However, the latest increase was the slowest for five months and much weaker than the post-crisis peaks recorded in 2013 and 2014. Construction companies nonetheless remain highly upbeat about their prospects for output growth over the next 12 months. Reflecting this, more than half of the survey panel (52%) forecast an upturn in business activity, while only 6% anticipate a reduction.

Job creation picks up to a three-month high
Employment growth was sustained across the construction sector for the twenty-eighth month running in September. Moreover, the pace of staff hiring remained strong, and accelerated to its fastest since June. At the same time, construction firms signalled another increase in sub-contractor usage during September. Sub-contractor charges continued to rise sharply, although the rate of inflation has eased slightly from the survey-record highs recorded earlier in 2015.

Comment:

Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: “Construction firms enjoyed a strong finish to the third quarter of 2015, as a sustained rebound in new development projects continued to have an impact on the ground. Moreover, September data suggests that the UK construction sector is still experiencing its most intense cycle of job hiring for at least 15 years, and consequently skill shortages remain a dominant concern across the industry.

“Residential building saw the most decisive momentum shift in September, hitting a one-year high in the process, while commercial development also picked up speed as rising business investment and improving UK economic conditions acted to bolster demand. A growth spurt for civil engineering activity completed the hat-trick of positive news for the main construction sub-sectors in September, helped by robust pipelines of infrastructure work.

“While the latest survey provides positive news on construction output, jobs and supply-chains, there was a warning light flashing in terms of total new orders. Construction companies have recorded a steady slowdown in new business growth from June’s post-election peak and the latest upturn was the second-slowest since mid-2013.”

Commenting on the report, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said:

“The building blocks were firmly in place this month as the sector reported more work, rising staff levels, and strong optimism for the future.

“Though the overall growth rate of new business was showing signs of slowing down, all three sectors offered positive news with residential housing the strongest performer.

“Issues around skills shortages continued to be a drag on the sector with the resultant demand for higher salaries from the smaller pool of skilled staff. Companies reported higher staffing levels but it was a continuing challenge to find specialist skills as they struggled to rely less on sub-contractors to fill the gaps.

“Lower fuel and raw material costs helped margins even in a landscape of strong competition. Levels of output were robust and increased at the fastest pace for over six months.”