Residential construction work falls again in July

Published:  03 August, 2011

LONDON: New data suggests that residential construction work fell slightly in July for a second month in a row while commercial and civil engineering work both grew.

The CIPS/Markit Purchasing Managers' Index (PMI) for July stood at 53.5, marginally down on the previous month. Although a figure above 50 signifies expansion, employment levels fell again.

Howard Archer, chief European and UK economist at IHS Global Insight, said that the construction sector faced a "challenging environment over the coming months" which was likely to limit growth prospects.

Paul Connolly, director at project and construction consultancy Turner & Townsend, commented: "Coming just a week after the second quarter GDP figures, these data paint a picture of weak, fragile growth in the construction industry that mirrors the economy as a whole.

"Both new construction orders and output increased, but the sector shed jobs for the second month in a row. Confidence has improved slightly, but the construction industry is still beset by volatility.

"Stubbornly high oil prices and the lack of access to credit have put constant pressure on profit margins. The post financial crisis recovery is still delicate, and all the low hanging fruit has been snapped up.

"Builders and developers are constantly having to think laterally to find profitable projects, as there are no easy options left. Many developers are focusing on unlocking value rather than creating value.Rather than run the risk of building from scratch, many are seeking to consolidate or refurbish their existing assets.

"Some contractors are even bidding below cost or pulling out of the less profitable sectors. There is less work around, and what there is is more complex, so the industry as a whole is being tested.

"The market remains intensely cautious, and these latest figures will do little to allay people's fears."

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