UK construction activity was again robust in July, albeit rather less so than June's 4-month high. At 57.1 the sector PMI was a point down on its unrevised quarter-end reading and weaker than expected but still easily far enough above the 50 expansion threshold to signal another healthy increase in output.
As usual, residential construction was the best performing subsector but growth here slowed significantly, registering its smallest gain since June 2013. Civil engineering also decelerated but, by contrast, commercial projects saw their fastest rate of expansion since March.
Crucially, new orders were again strong and growth here was only slightly short of June's 8-month peak. Employment followed a similar pattern with a rise that was smaller than in the previous month but still comfortably above its long-run average. Indeed, subcontractor availability fell for a twenty-fifth consecutive month, the longest sustained period of decline in more than a decade. Moreover, subcontractor charges increased at a rate almost equalling April's survey record.
Looking ahead the sector remains optimistic, albeit not quite as bullish as June's 11-year high. The sector as a whole is clearly still in very good shape and it may well be that slower growth last month was as much a function of skilled labour shortages as anything else. Certainly the BoE MPC will be keeping a wary eye on wages.
The Markit/CIPS UK Construction PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP. Unlike other PMIs, this PMI focuses on one industry, namely UK construction.
The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.
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