Thursday, November 5, 2009

Construction buyers on alert as input prices rise and activity falls

Construction buyers have warned of a slide into a nightmare spiral of falling activity with rising materials prices.

The fall in construction purchasing activity accelerated in October, according to the latest figures from the CIPS/Markit purchasing managers index, marking the 20 consecutive month of falls.

The index, based on a survey of purchasing managers asked whether orders had increased or decreased in the month, fell to 46.2 last month, down from 46.7 in September.

Alarmingly, the survey registered the first rise in input prices in October, as higher fuel prices and unfavourable exchange rate movements resulted in rising costs. Job cuts also rose at the fastest rate in four months.


Construction buyers on alert as input prices rise and activity falls


Against a worsening backdrop residential construction showed its second successive month of growth, akthough civil engineering recorded the fastest fall in orders in seven months.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “These continue to be worrying times for the UK construction sector as firms continue to struggle in the face of difficult market and economic conditions.

"The fact that the sector took another turn for the worse this month just highlights how fragile it still is."

He added: "Further drops in commercial and civil engineering activity were the key drivers behind the bad news. A stabilisation in order books did little to support activity, while weak sterling and higher fuel prices added to constructors' difficulties."

Noble said: "Perhaps of most concern is the continued slashing of jobs at construction firms. The pace of job cuts actually accelerated in October as the current state of the sector means that many who have lost jobs will struggle to find something else before Christmas."

"The only light at the end of the tunnel was optimism over future business prospects as purchasing managers said they expect workflow to rise due to improving economic conditions and marketing initiatives.”

Sarah Ledger, Economist at Markit said: "Encouragingly, data for the residential construction sub-sector signalled improved activity levels for the second consecutive month, and overall new orders volumes received by UK construction companies were reported to have stabilised.

"Unfortunately, persistent spare capacity meant that further job cuts were made, with this showing no sign of easing. However, with the anticipation of a recovery in economic conditions, optimism over future business activity remained high.”

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