A decline that’s positive

5 August 2021

While many hirers and suppliers tell me they are still experiencing intense demand for equipment, a good number have reported a slight decrease in the last fortnight or so. Perhaps more people are taking well-earned summer breaks. 

Nevertheless, construction activity remains very strong overall. So any deceleration could almost be seen as a welcome relief. 

It’s a situation borne out by figures released this morning from construction companies responding to the Purchasing Managers’ Index (PMI) survey for July. Compiled by IHS Markit for the Chartered Institute of Procurement & Supply (CIPS), the data shows slower growth in all three main categories of work. 

Survey respondents cited difficulties keeping pace with the recent surge in demand for construction projects, especially due to raw material supply shortages and shrinking sub-contractor availability.

Around 81% reported a rise in their average cost burdens during July, while only 1% signalled a decline.

The headline Total Activity Index registered 58.7 for the month, down sharply from June's 24-year high of 66.3 but still well above the crucial 50.0 no-change threshold. 

House building was the best-performing category in July (index at 60.3), followed closely by commercial building (59.2). In both cases, the rate of expansion was the weakest since February. 

This should surely be seen as something of a respite. Indeed, some construction companies noted that reduced materials availability had acted as a brake on purchasing volumes in July, although others suggested that the post-lockdown spike in customer demand had started to wane.

Survey respondents noted that supply imbalances were amplified by a lack of transport availability, port congestion, and Brexit trade frictions.

And the rise in input cost inflation continued in July, fuelled by supply shortages and robust demand for construction items. 

Interestingly, the decline in sub-contractor availability was the second-fastest since the survey began in 1997, exceeded only by that seen during the lockdown in April 2020.

Nevertheless, optimism towards future output growth remains historically high. 

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