GB: PMI Construction

Tue Oct 03 03:30:00 CDT 2017

Consensus Actual Previous
Level 51.1 48.1 51.1

UK construction was surprisingly soft in September. At 48.1, the sector PMI signalled the first outright contraction in business activity in thirteen months and the sharpest fall since July 2016. The decline was attributed to fragile confidence and subdued risk appetite.

The headline weakness was fashioned by setbacks in both civil engineering and commercial building. The former recorded its worst performance in almost four-and-a-half years while the latter posted its second steepest decrease since February 2013. House building was the only major category to register any expansion, although even here growth slowed to a 6-month low.

Ominously, aggregate new business volumes fell for a third successive month which, in turn, prompted both a further reduction in sub-contractor usage and a relatively weak rate of job creation. As a result, vendor delivery times lengthened by the smallest amount since November 2016. Not helping matters was another increase in input costs and inflation here hit a 7-month peak. Business confidence in the year ahead eased to its second weakest mark since April 2013.

September's results are poor and offer little hope of any near-term rebound. However, manufacturing seems to be holding up well (see Monday's PMI entry) and so long as the service sector PMI (tomorrow) is respectable, BoE MPC tightening should still be on the cards in November.

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.