The Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the overall performance of the construction economy – rose to 57.5, from 54.8 in the previous month, indicating marked expansion of the construction sector.

Growth was driven by sharper increases across all three sectors covered by the survey, with the rate of civil engineering activity expansion the most marked for thirty-seven months. The fastest growth was reported in the commercial sector, with the seasonally adjusted Commercial Activity Index rising from 54.6 in November to 58.1 in December.

Roy Ayliffe, Director of Professional Practice at the Chartered Institute of Purchasing and Supply (CIPS), said: “Growth in the construction sector is continuing as the rise in commercial construction fuels sector expansion, ending the year on a high note. The main issue facing the sector is the sharp rise in input price inflation. Many panellists reported rising energy costs and higher prices for various raw materials.

"However, as we look forward to the new year, purchasing managers remain optimistic that growth will continue with orders and planned company expansions increasing confidence.”

New orders
New order volumes continued to rise, and at a more marked rate than in the previous month. Panellists indicated that new commercial contracts had underpinned the rise in total new business. This was reflected in the seasonally adjusted New Orders Index, which posted a reading of 56.0. Furthermore, 31 per cent of panellists reported higher volumes of new orders in December, compared with 22 per cent who witnessed decreases over the same period.

The seasonally adjusted Employment Index posted 53.3 in December, signalling a sixth successive monthly increase in UK construction sector employment. Anecdotal evidence suggested that firms had hired more staff in response to increasing workloads.

UK construction firms raised their purchasing activity at the most marked rate for three months in December, reflecting the increase in construction activity and higher volumes of new orders. The seasonally adjusted New Orders Index posted a reading of 56.0, up from 53.8 in the previous month.

Strong growth of input buying placed further pressure on suppliers, as average vendor performance deteriorated for the eighteenth consecutive month. Moreover, the rate at which average lead-times lengthened was the most marked since June 2004, reflected by the Suppliers’ Delivery Times Index, which posted a reading of 42.5.

Subcontractors
The utilisation of sub-contractors by UK construction firms fell for the second month in a row in December, although the rate of decline was only marginal. The availability of sub-contractors increased, for the first time since July, albeit only moderately. Rates charged by sub-contractors continued to increase, while the quality of their work was deemed to have deteriorated – at the most marked rate for eight months.

Firms in the UK construction sector continued to face sharp input price inflation, with panellists reporting rising energy costs and higher prices paid for various raw materials.

Confidence regarding future levels of construction activity remained high in December with panellists more optimistic compared with the previous month. The seasonally adjusted Future Business Activity Index posted a reading of 72.6, up from November’s 71.9. Anecdotal evidence suggested that planned company expansions, in addition to anticipated growth in volumes of new orders, had underpinned optimism at the end of 2006.

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Susie Hughes
The Editor © Hardhatter 2007