UK construction comfortably outperformed expectations in December. At 54.2, the sector PMI was up 1.6 points from its unrevised November outturn and at its best level in eleven months.
Residential building was again the best performing subsector and December's rate of expansion was the most robust since January. Civil engineering also accelerated to a solid pace but commercial construction saw just a small improvement.
Aggregate new business grew rapidly and was reflected in the largest increase in sector headcount since May. That said, the gain here was still well short of the average seen since the jobs recovery began back in May 2013.
Meantime exchange rate depreciation ensured another hefty increase in costs which climbed more sharply than in any month since April 2011. Pressure on prices was further compounded by the most marked deterioration in vendor performance since June 2015. Nonetheless, business confidence in the year ahead still rose to a 3-month high.
Overall the December results are quite promising and would seem to point to a decent first quarter for the construction sector. Government plans to boost new starter home building should offer further support. The main worry is the ongoing rise in costs which could become a real problem in 2017.
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.