Economic data gives food for thought

28 July 2022

Perhaps it will put some people off their appetite, but the news that McDonald’s has raised the price of a cheeseburger for the first time in 14 years certainly reflects the impact of inflation. 

Mind you, the 20 per cent rise in the snack from 99p to £1.19 might be hard to swallow, given that inflation in June stood at 9.4 per cent and some commentators suggest it might peak later this year. Some other items on the menu will rise by between 10p and 20p. 

It is amongst a series of negative news lately. Amazon raised the cost of its Prime delivery service this week – also by 20 per cent – and consumer brands giant Unilever has increased prices by 11.2 per cent. 

DIY retailer Wickes, now demerged from Travis Perkins, reported a recent softening in its markets. Its CEO said that, while DIY sales remain above pre-Covid levels, annual profits are expected to be well below previous City expectations. 

Also, earlier reports of a slowdown in house building activity during June were obviously disappointing for suppliers of equipment and materials. 

The Construction Purchasing Managers’ Index compiled by S&P Global for the Chartered Institute of Procurement and Supply signalled an overall downturn in residential work for the first time since May 2020. Certainly, inflation, energy prices and global supply chain disruptions have darkened the general economic outlook. 

However, there are other factors at work which give a different perspective. House builder Persimmon’s chief executive, for example, suggested recently that skilled labour and materials shortages were an issue, as were planning delays. The company expects demand from would-be buyers to remain strong. 

And hire companies can focus on other positives that arise out of the very nature of the markets they serve. 

The point is that much of the bread-and-butter tool and equipment hire business relates to houses, offices, warehouses and other facilities that have already been built, and they have to be maintained, repaired and renovated. 

For example, Martin Doran, general manager with Astley Hire in Leigh, tells me: “We very much focus on the maintenance market. Activities like workplace shutdowns, stocktaking checks and other tasks that must be undertaken every few months still go on and the equipment has to be hired in to do it. 

“This kind of user doesn’t want to own the product when they will use it only occasionally. But for us, the demand is ongoing.” 

Indeed, Martin tells me that Astley Hire had a record month for the hire of access machinery in June. 

“Machines are obviously in and out quite frequently compared with the long-term plant hires associated with new-build projects, so we have to be agile and responsive – but that’s what hire is all about.” 

Similarly, Simon Whitfield, managing director of Halt Hire in Stockton-on-Tees, is extremely positive. “There are no signs of slowdown in our region whatsoever and we are serving contractors, councils and civil engineers. House builders are busy and there is a lot of broadband installation taking place. 

“A huge amount of infrastructure work will continue. Even though it kept going during Covid, it slowed down appreciably and the world is still playing catchup. So even if there is a recession next year, it shouldn’t affect construction to a massive degree. 

“Whenever anything like this happens, it’s case of how a business reacts and how it adapts. You have to be like a speedboat rather than a supertanker and target the growth opportunities quickly. Some people call it entrepreneurial but it’s just common sense. It’s what you do to win new business and how you treat your customers that counts.” 

Across the Atlantic yesterday, the rate-setting US Federal Reserve yesterday lifted interest rates by 0.75 per cent for the second consecutive month to tackle inflation. 

However, it was significant that Jerome Powell, the central bank’s chairman, said that he did not believe the US economy had entered recession, adding, “There are just too many areas of the economy that are performing too well.” 

And positive reports such as those from the hirers above suggest that construction is likely to remain more resilient than other sectors. 

So while the immediate outlook is undoubtedly becoming more challenging, individual statistics don’t tell the whole story and, whether dealing with burgers or buildings, data on price rises and macro construction figures needs to be considered carefully.