Construction sector activity improves again

The latest Chartered Institute of Purchasing and Supply (CIPS) survey published today (Friday) has again showed a further strong improvement in levels of construction sector activity in June.

The Construction Purchasing Managers' Index, a seasonally adjusted index designed to measure the overall health of the construction economy, showed a slight acceleration in the rate of growth of activity compared to the previous month.

Roy Ayliffe, CIPS director of professional practice, said: "Overall, June saw a further strong improvement in the construction sector, as levels of activity picked up from the previous month.

"Purchasing managers stepped up their activity to facilitate rising workloads amid reports of shortages on the supply side. At the same time, rising oil prices and shortages of raw materials drove up input price inflation to the fastest rate since our survey began in April 1997."

     
Two of the three broad areas of construction activity covered by this survey registered robust growth in June. The sharpest increase was seen for commercial construction activity, which expanded at an accelerating rate during the month. Expansion of housing activity was only marginally less marked than for commercial activity, as residential demand remained buoyant.

Ongoing growth of total industry activity continued to be underpinned by a further sharp increase in the volume of new business placed with construction firms in June.

The rate of growth of new business also continued to outpace that of activity, suggesting delays between the completion of existing contracts and commencement of work on new projects.

The rate of growth of demand for inputs placed increased pressure on suppliers' capacity which, along with shortages of certain raw materials, resulted in a further substantial lengthening of average lead-times.

Shortages of certain raw materials on international markets (in particular steel) and rising fuel prices were widely cited by panel firms as the principal factors behind a further steep rise in average input costs in June. Moreover, the rate of input cost inflation picked up sharply compared to the previous month to the fastest since the survey began in April 1997.

The overall size of the construction sector workforce increased markedly again in June, as panel firms generally recruited additional staff to meet rising workloads. In a number of cases, improvements in productivity allowed firms to increase activity at a greater pace than employment.

Finally, the UK construction sector remained strongly optimistic in June that activity levels would be higher in twelve months' time than at present. Confidence reflected expectations of planned expansions and increased tendering opportunities.