Economic factors fuel construction slowdown
9 June 2022
In the highly regarded Construction Purchasing Managers’ Index (PMI) survey for May, construction companies reported a slowdown amid a considerable loss of momentum for the residential category. The latest rise in housing activity was the weakest since the recovery began two years ago.
Respondents to the survey, compiled by S&P Global for the Chartered Institute of Procurement & Supply, suggested that subdued consumer confidence and worries about the economic outlook had constrained demand. Higher borrowing costs and intense inflationary pressures were also cited as factors likely to hold back growth over the next 12 months.
The headline PMI index, which measures month-on-month changes in total industry activity, registered 56.4 in May, down from 58.2 in April and the lowest reading for four months.
However, this still indicates growth, albeit weak, since 50.0 represents a no-change position. More disappointing, though, was the finding that weaker trends in the house building sub-sector were the main brake on growth, with this index falling to 50.7 from 53.8 in April.
Commercial building was the fastest-growing segment in May (index at 59.8), with the speed of expansion easing only slightly since April, and civil engineering activity increased for the fifth month running and at a robust pace (index at 55.5) amid a sustained boost from major infrastructure projects.
Rapid cost inflation persisted in May, with the vast majority of survey respondents (73%) reporting a rise in purchasing prices. This was linked to rising fuel, energy and raw material costs.
The number of construction firms predicting an increase in business activity during the year ahead (46%) continued to exceed those expecting a decline (19%) by some margin. However, the resulting index measuring overall growth expectations across the construction sector signalled the weakest degree of optimism since August 2020.
Construction companies suggested that lower consumer confidence, rising borrowing costs and heightened economic uncertainty were all likely to act as headwinds to client demand in the next 12 months.
● COMMENT: The PMI survey data shows signs of slowdown but this is hardly surprising given the successive challenges of Brexit, Covid and the Ukraine war. As in any period of economic disturbance, some construction markets will perform more strongly than others and these are the once that astute, well-managed hirers will target successfully. This is a time for coolness and confidence, and I’m looking forward to adding stories in the future on the blog highlighting opportunities and successes.
