GB: PMI Construction

Wed Aug 02 03:30:00 CDT 2017

Consensus Actual Previous
Level 54.0 51.9 54.8

Construction activity continued to expand in July but at a sharply slower pace than in June. At 51.9, the sector PMI was nearly 3 points short of its previous mark and indicative of the worst performance in eleven months.

Weakness was most apparent in commercial construction where heightened political uncertainty and Brexit worries were cited as major restraining factors. Residential building was again the best performing subsector although even here the increase in activity was the smallest in three months. The only acceleration in growth was in civil engineering.

Ominously, the survey found the first fall in new business volumes since August 2016 and this in turn contributed to the smallest gain in sector headcount in eleven months. Sub-contractor usage also declined. Even so, delivery times for construction materials continued to lengthen significantly, reflecting low stock levels and stretched capacity amongst suppliers. At the same time, input cost inflation remained elevated and near the peaks seen at the start of 2017. This was partly linked to higher prices for imported items.

Against this backdrop, optimism about the year ahead stayed positive but still posted its worst reading since July 2016, just after the Brexit referendum result.

Overall the July results are disappointing and warn that the construction sector could be in for a rocky time head.

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.