November PMI data shows a marginal rise in overall construction output, but the lowest business optimism for over two years
The November PMI construction business analysis shows cost inflation easing to a 22-month low- but clear apprehension across the industry for the months ahead.
The turbulent economic conditions of Autumn 2022 have continued into the winter, as subdued demand and cusomer hesitation continued to impact the sector.
Survey respondents specifically identified that higher borrowing costs and worries about the economic outlook had curtailed construction activity.
The S&P Global / CIPS UK Construction Purchasing Managers’ Index registered above the 50.0 no-change mark for the third month running at 50.4. However, the index was down from 53.2 in October and pointed to the weakest performance since August.
Pandemic aside, the degree of positive sentiment towards business expectations was the joint-weakest since December 2008.
A reduced appetite for risk was noted across virtually every sector
Civil engineering activity (46.7) declined for the fifth consecutive month(the sharpest such reduction since August). Lower volumes of output were mainly linked to a lack of new work to replace completed projects.
Housebuilding stalled (50.0) which ended a three month marginal streak of expansion. It is believed higher mortgage rates, a residual consquence of the September mini-budget, compounded falling consumer confidence in the housing market.
Commercial work was the only segment to register an overall rise in business activity in November (index at 51.1).
November PMI data indicated a modest increase in new orders
Contrasting with October’s slight decline, there was a slight increase in total new orders across the construction sector in November.
Employment also increased but the rate of job creation slowed, with respondents indicating concerns about rising costs and slow growth had led to more restrained hiring practise.
Fraser Johns, Beard finance director said: “Despite the marginal rise in overall construction output, inflationary pressures and the rising cost of commodities like fuel are starting to take their toll on business activity.
“However, none of these trends have arrived out of the blue. In reality, the sector has been preparing itself for exactly this situation as the year has progressed and is already working within the constraints imposed by a tightening economy.
“While we should not underplay the downturn in some areas of the sector, the fact that commercial work continues to show a rise in business activity demonstrates that there is still some confidence in the market and developers are continuing to commit to plans.”
Supply chain issues and logistics are still an area of concern
Purchasing activity was also on the increase, as some canny buyers sought to to place orders ahead of anticipated supplier price hikes.
Rising energy prices, general inflationary pressures and tight supply conditions were linked to the rise in average cost burdens in as seen in the November PMI data.
Supplier’s delivery times were at their longest since July and respondents suggested this was mostly due to transport and logistics delays.
Anecdotal evidence suggested that recession worries, higher interest rates and a subdued housing market outlook had all weighed on optimism, with only 29% of respondents anticipating a rise in business activity in 12 months’ time, while 26% forecast a decline, the lowest degree of confidence recorded since May 2020.
Industry responses to the November PMI report
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said: “Stalling house building activity contributed to the weakest UK construction sector performance for three months in November. Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook.
“Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.
“The number of construction firms anticipating a rise in overall business activity during the year ahead exceeded those forecasting a decline by only a very fine margin during November. Moreover, disregarding a three-month period of negative sentiment at the start of the pandemic, our survey measure of business expectations across the construction sector was the joint-weakest since December 2008.”
Concern and caution will be ubitiquous for some time
Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “The small uplift in activity in November did little to dispel builders’ fears about the future as optimism fell to the same level as December 2008 during the last recession and to one of the same lows seen during the pandemic.
“This gloomy view was fuelled in part by continuing shortages of key materials such as steel and timber along with skilled labour, affecting job hires which rose at the slowest pace since February 2021. As new order growth remained below the 2022 average to date, builders were becoming hesitant about hiring too many labourers and there was some mention of shedding jobs over fears of the strength of the economy in 2023.
“Overall, it was civil engineering that remained steadfastly stuck in the mud, with the fastest fall in activity since August. Client hesitancy, concerns around the cost of materials and doing business weighed heavily on the sector which recorded the fifth consecutive monthly fall in activity. Residential building also appears to have run out of steam as greater borrowing costs continue to dampen demand.
“Purchasing activity remained buoyant as businesses concerned about higher costs and potential delays reportedly ordered more than they needed, with delivery times increasing for the fourth consecutive month. Construction companies now have a tightrope to walk in terms of being ready for recovery and cautious around investment until the road is clear for sustainable building opportunities ahead.”
