Construction
Industry to Grow in 2008 According to Latest Survey
The construction industry ended 2007 on a positive
note with modest growth set to continue during 2008, according to the
latest joint Trade Survey Report from the Construction Products Association
and the Construction Confederation.
Although both product manufacturers and contractors report that activity
growth slowed during the final quarter of last year, output and sales
volumes remained solidly up compared to the same period a year earlier.
Contractors reported a further rise in output during the fourth quarter
of 2007. The pace of growth weakened markedly during the quarter compared
to the previous three months yet still produced a record year-on-year
rise in output growth. The dip in output combined with weaker new orders
and enquiries, would suggest that higher interest rates and the tougher
credit conditions are affecting both consumers' and investors' sentiment,
dampening the flow of new work in private sectors. The past tightening
of the labour market, which pushed up labour costs significantly, appears
to have been eased by slower industry growth during the fourth quarter.
Overall, construction products sales slowed during the fourth quarter
compared to the previous three months, with weaker heavy side sales
offsetting a rise in light side sales. Nevertheless, sales volumes remained
firmly higher than levels seen in 2007. Manufacturers of construction
products continue to report widespread increases in unit costs, driven
by higher energy and raw material prices. This means the profit margin
of manufacturers is being squeezed, as input price increases continue
to outpace the rise in selling prices.
However, most product manufacturers identified demand level as the greatest
potential constraint upon sales in 2008, as capacity utilisation eased
during the fourth quarter.
Noble Francis, Economics Policy Development Director at the Construction
Products Association said: ‘There is concern over output and sales
growth in the first quarter of this year. However, expectations for
2008 as a whole remain buoyant. Whilst there is an absence of firm order
books and new enquiries and a more subdued outlook for the UK economy,
the industry is optimistic. During the next twelve months firms expect
to see orders from 2007 feeding through into actual work, focusing particularly
on public sector activity in health, education and infrastructure.’
Stephen Ratcliffe, Chief Executive of the Construction Confederation
added: ‘Despite the slowing in the rate of growth, there is a strong
indication that the sector is still fairly robust. Contractors retain
a healthy amount of optimism and we have to make sure that we don't
talk ourselves into a recession when the evidence shows the industry
remains busy and buyoant.’
Key survey findings are:
* Despite expectations of a marked slowdown in overall industry activity
this year, product manufacturers remain optimistic in the short-term,
with the majority of those surveyed anticipating higher sales volumes
over the coming year.
* Contractors report that Q4 output was higher than one year ago, with
more than half of firms reporting that output rose relative to the same
period a year ago.
* However, contractors report that the outlook, in terms of their order
books, is mixed. Public new housing and commercial contractors regard
their order books as 'above normal'. However, this contrasts with industrial
and public non-housing sectors, where 27% and 22% of contractors describe
work as 'below normal'.
* Construction product manufacturer costs rose during the fourth quarter
of 2007, with 90% of firms reporting increases over the last year. 44%
of heavy side firms report that their costs rose by 'more than 5%'.
However, the increases in costs is relatively modest for light side
firms, two thirds of whom report that their unit costs have increased
by 'less than 5%'.
* Cost rises occurred mainly as a result of higher fuel and energy costs.
75% of heavy side firms and 63% of light side firms report that higher
energy costs had added to production costs.
* However, costs also rose as a result of rises in raw materials prices.
69% of all firms reported that raw material price increases also led
to rises in the cost of production.
* Building contractors' capacity utilisation remains at high levels
but pressures are easing. Two thirds of contractors stated that they
were operating at 90% or higher in terms of capacity, slightly lower
than in the previous quarter.
* Capital investment rose during 2007, with around half of heavy and
light side firms investing in more plant and equipment to improve productivity.
However, investment intentions are more muted for the year ahead with
a balance of 15% of heavy side firms planning to decrease investment
in structure and only 31% of heavy side firms
* Civil Engineering contractors reported a further rise in total civil
engineering workload, increased employment and order books fuller than
a year ago. However, contractors do not appear to be as confident that
these trends will continue over the next 12 months, although there are
positive findings for work in the roads sub-sector.
Web: http://www.constructionproducts.org.uk
Web: http://www.constructionconfederation.co.uk
