New construction orders - March 2007: Expert analysis (Benchmark)

On the face of it, the latest official figures appear to provide a sober contrast to the positive construction outlook reported by the latest industry surveys, with overall new orders during the first quarter only 1% up on a year earlier. However, the underlying pattern is more encouraging. Overall, new orders were 4% up on the previous quarter the private commercial work is set to remain a key driver for industry activity over the coming year and the first quarter saw a welcome recovery in infrastructure new orders.

New orders for commercial projects strengthened during the first quarter, although orders remained down on a year ago, reflecting a general absence of new PFI health and education projects and a boost to orderbooks a year ago from a major shopping centre project in Bristol. Significantly, orders for offices remained firm, up 5% on a year ago. In addition, new orders for entertainment projects were 20% higher, benefiting from the final go-ahead for the new Liverpool football stadium.

The recent weakness in PFI projects has partly been offset by tentative signs of recovery in traditionally funded health and education projects. This, combined with several MoD contracts, has helped lift public non-housing orders by 9% during the first quarter to their highest level for 18 months.

A marked fall in factory new orders during the quarter dragged industrial new orders down 11% on a year ago. However, new orders for warehouses remain firm and this should help secure modest overall growth in industrial output during the course of 2007.

Public housing new orders remain particularly strong, up by more than a quarter on a year earlier. Private housing new orders, however, have been lacklustre, falling back by 8% during the first quarter and little changed on a year ago. The subdued new orders are in marked contrast to the firm market conditions and increase in new house sales being reported by developers.

More encouragingly, the fragile recovery in the infrastructure sector appears to be gathering momentum, with new orders climbing 44% against a year ago. While the up-turn has been boosted by a major roads contract in January, water industry contracts during the quarter were two-thirds higher than a year ago. In addition, orders for electricity industry projects strengthened during the quarter, although they remained below the exceptionally high levels of a year earlier.