New orders in construction rise at fastest rate since 2007

March saw the strongest upturn in new construction orders since September 2007, four and a half years ago.

The monthly survey of construction industry purchasing managers reports a marked expansion of UK construction sector output, with the rate of growth accelerating for a second successive survey period and confidence strengthening.

The seasonally adjusted Markit/CIPS Construction Purchasing Managers’ Index (PMI) posted 56.7 in March. Up from 54.3 in February, the index has now posted above the 50.0 no-change level that separates growth from contraction in each month since January 2011. Moreover, the latest reading pointed to the sharpest expansion of output in 21 months.

Growth was registered across all three of the broad construction categories monitored – housing, commercial and civil engineering. Commercial was again the strongest performing of the sub-sectors, in line with the recent trend. However, the increase in civil engineering activity strengthened and was the fastest since March 2011. Only a slight increase in residential construction was indicated.

A substantial rise in new business received by UK construction companies was seen in March. Growth has now been sustained for six consecutive months, and the latest rise was the sharpest since September 2007. Panellists commented that a general improvement in market activity, increased tender opportunities and long-running negotiations coming to completion had boosted new work intakes in the latest survey period.

March data signalled a rise of employment in the UK construction sector, reflective of growth of both output and new orders. However, the rate of job creation was only modest. Increased usage of sub-contractors was also indicated.

Purchasing activity rose at the fastest pace for more than four years in March, in line with a faster expansion of output requirements. Subsequently, suppliers’ delivery times lengthened again. Anecdotal evidence suggested that vendors continued to hold low inventories.

Input prices faced by UK construction companies rose sharply in March. Higher raw material costs, particularly for oil, were cited as the main driver of inflation. Nonetheless, the latest increase was below the long-run trend.

UK construction companies were optimistic in March that activity would rise over the next year. Positive sentiment strengthened to a 22-month high, indicating that confidence continued to improve. Expectations for new marketing initiatives, a more buoyant outlook among clients, rising tender opportunities and company expansions are all anticipated to support growth. Nonetheless, optimism remained below the historical average.

Markit chief economist Chris Williamson said: “The good weather appears to have led to a surge in demand for construction projects in March, adding to the recent flow of good news which suggests the economy will have skirted a recession.

“Construction companies reported the largest monthly rise in new orders for four-and-a-half years, driving building activity higher at the fastest rate since mid-2010. Coupled with increasing activity recorded in the first two months of the year, this bodes well for the sector’s contribution to overall growth of the economy in the first quarter and will raise hopes that the country has avoided a slide back into recession.

“Looking ahead, the lack of big new projects such as Crossrail and the Olympics means expectations about the year ahead continued to run well below the pre-crisis peaks, but business confidence nevertheless reached the highest for nearly two years, driven up by expectations of increases in new order intakes and improving client optimism.

“The particularly encouraging news is that the improvement in confidence is generating more jobs, with employment rising modestly.”

Source: The Construction Network

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