For the third month in a row, UK construction outperformed expectations. At 52.3, the sector PMI was up more 3 points versus August, well above the market consensus and, more importantly, back into positive growth territory for the first time since May.
The rebound was led by residential building which recorded its strongest increase since January. Civil engineering was not too far behind with activity levels reaching their highest mark since March but commercial construction contracted for the fourth time in as many months. That said, the decline here was at least the smallest since the downturn began in June.
The headline improvement reflected the first rise in new business since April and this proved strong enough to support a further moderate expansion in headcount. However, capacity constraints continued to ease with sub-contractor usage falling at one of the fastest rates since late 2013. Meantime, the weaker exchange rate again contributed towards another rise in input costs and, although slightly short of its August outturn, cost inflation was still close to its peak over the last couple of years.
The September construction PMI results follow yesterday's news of an even more robust manufacturing survey and mean that unless tomorrow's service sector report is surprisingly soft, the economy will have ended the third quarter on a pleasingly robust note. At this stage, another near-term BoE ease is looking increasingly unnecessary.
The Construction Purchasing Managers' Index (PMI) provides an estimate of business activity in the UK construction sector for the preceding month 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 gross domestic product. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and Markit.
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.