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 | | CONSTRUCTION OUTPUT UP, BUT SO ARE COSTS | | | Construction Products Association | | 29/09/2006 | | |
Construction output strengthened during the second quarter of 2006, according to the latest joint Trade Survey Report from the Construction Products Association and the Construction Confederation, but this positive outlook was tempered by continuing increases in fuel and energy costs, which are squeezing both product manufacturers' and contractors' margins and driving up tender prices.
The rise in output has been caused by a welcome recovery in Government funded projects, such as new public non-residential and in both housing and non-housing repair and maintenance work. And there are encouraging signs from the industry that further growth will continue throughout the third quarter of the year.
Construction product manufacturers have enjoyed an overall rise in sales with light side firms also reporting higher export volumes and prices during the second quarter as overseas markets. Light side firms are gernerally positive about out-put growth over the next twelve months and although heavy side firms are more cautious about their immediate trading prospects, they too expect sales volumes to improve over the coming year.
Speaking about the latest report, Allan Wilen, Economics Director for the Construction Products Association, said; `Council and housing associations are now pressing on with promised improvement programmes and this has led to major contractors benefiting from the upturn in R&M work. As well as this, civil engineering contactors are also reporting that they are experiencing the strongest rise in workload for nine years, so this is good news. Unfortunately higher fuel and energy prices are exerting increased pressures upon industry costs and more than 75% of product manufacturers have had to increase their unit costs during the past twelve months because of this.'
`The rise in manufacturers' costs is squeezing margins and is feeding through to selling prices. As a result building contractors are now reporting that higher materials' prices are increasing their cost base and pushing up tender prices'.
Stephen Ratcliffe, Chief Executive of the Construction Confederation, added; 'It is welcome to see that building contractors anticipate the current upturn in activity will be sustained. It is also important that this growth is achieved through both public and private sector work as this gives the industry a broad base to build on. We will continue to remind Government that the public sector needs to maintain continuity and consistency in workload as this is key to the development of the industry, encouraging investment and providing employers with the confidence to ensure recruitment and training programmes present attractive and secure career options to young people.'
Key survey findings are:
Contractors report second quarter output was ahead of a year ago, with on balance 40% of firms reporting that output was up on a year earlier.
Overall construction product sales were flat during the second quarter, as strong sales by light side firms were offset by weaker activity on the heavy side of the industry. On balance 46% of light side firms report that sales volumes had increased on a year earlier. The experience of heavy side firms has been mixed. On balance 14% of those firms report that sales volumes had decreased compared to a year earlier. However within this, 17% had seen their sales rise by more than 5% and a third had experienced a drop in sales volumes of a similar magnitiude.
The products manufacturing industry anticipates a modest overall strengthening in sales volumes over the next 12 months. Light side firms are especially positive, with firms anticipating a sales boost from the latest Building Regulations changes directed at increasing the energy efficiency of buildings.
Civil Engineering contractors reported a further rise in total civil engineering workload, increased employment of both operatives and staff, and order books fuller than a year ago.
Both heavy and light side manufacturers have seen widespread increases in fuel and energy costs, which they believe are the main drivers of their unit costs. Two-third of firms saw unit costs rise by 'more than 5%'. On balance more than three quarters of all firms surveyed indicate that unit costs were higher as a result of higher energy prices. The rise in unit costs continues to filter through to manufacturers' selling prices. On balance 69% of both heavy side and light side firms report that their selling prices increased in the first quarter, compared to a year earlier.
Contractors report rising material costs have increased pressure on margins and contributed to an acceleration in tender price inflation.
In contrast, contractors concerns over labour availability and costs have eased. The sourcing of many specific site trades has improved; in particular contractors reported a marked improvement in the availability of plasterers, painters & decorators and bricklayers. However, plumbing vacancies remain difficult to fill, with 61% of those surveyed describing recruitment as difficult or worse.
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