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UK, US Construction Spending Lags

Wednesday, August 3, 2016

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Uncertainty stemming from June’s vote to leave the European Union may play into lagging numbers in the U.K. construction industry in July, while brand new numbers on American construction in June show a slight drop as well.

British construction spending, gauged by the Markit/CIPS U.K. Construction Purchasing Managers’ Index (PMI), was down slightly from June, and “signaled the fastest overall decline in construction output since June 2009,” according to IHS Markit and CIPS, the organizations behind the survey.

Employment, Confidence Down

Employment in the U.K. construction sector declined for the first time since May 2013, the PMI report says; survey respondents reported that job cuts mainly came in the form of not replacing workers who left. Confidence in the year ahead is at its lowest since spring of 2013 as well, according to the survey.

PMI historical chart
IHS Markit/CIPS

British construction spending, gauged by the Markit/CIPS U.K. Construction Purchasing Managers’ Index, was down slightly from June, and “signaled the fastest overall decline in construction output since June 2009."

“July’s survey is the first construction PMI compiled entirely after the EU referendum result,” said Markit senior economist Tim Moore, “and the figures confirm a clear loss of momentum since the second quarter of 2016, led by a steep and accelerated decline in commercial building.”

Positive Developments

On the bright side, the PMI report notes that, while uncertainty in the wake of the so-called “Brexit” vote is likely to blame for at least some of the decline in work, it may not have had as serious an effect as some feared.

Construction cranes over London
© iStock.com / Adam Petto

Employment in the U.K. construction sector declined for first time since May 2013, the PMI report says.

“After taking into account the uncertain business outlook, there were also some reports that overall demand had been relatively resilient in July, especially for house building and infrastructure projects,” the report states.

And, the BBC reports, the Mineral Products Association reported growth in its areas, cement and concrete. Ready-mix cement sales are up 3.3 percent in the second quarter as opposed to the first, the group said, and even more significantly when compared with prior-year numbers.

US Numbers Lag Slightly

The news isn’t quite as gloomy in the United States, where June construction-spending numbers were released Monday (August 1).

Commercial construction site
© iStock.com / JP Schrage

Nonresidential construction in the U.S. took the biggest hit, down 1.3 percent from May to June.

Construction spending dropped by 0.6 percent to $1.33 trillion in June, slightly more than the decline in May (0.1 percent) but less than the drop seen in April (2.9 percent). The Associated Press reports that some analysts are pointing to last winter’s warm weather, noting that firms may have gotten a head start on projects that would normally have waited until spring and summer.

Nonresidential construction took the biggest hit, down 1.3 percent from May to June. That sector had seen slight growth earlier in spring; June was its biggest decline since December.

AIA Predicts Growth in 2016 and Beyond

The American Institute of Architects released its Consensus Construction Forecast last week, predicting a nearly 6 percent overall gain in construction spending in 2016, and another 5.6 percent gain in 2017. The forecast aggregates predictions from a number of economic and industry players.

The AIA notes that in the U.S., markets face uncertainty similar to what the U.K. is experiencing, due to the upcoming presidential election.

“Presidential elections tend to depress economic growth in the six months leading up to an election, because many investors are reluctant to move ahead with projects given that policies may change,” the report states. “This time, the level of uncertainty regarding post-election policies is unusually high, which likely will depress investment even more.”

But the organization remains positive overall.

“Commercial construction sectors are projected to be the strongest performers this year, with the institutional categories moving back a bit from their pace of last year,” the AIA forecast says. “Next year, the commercial sectors are expected to see slower yet still healthy levels of growth, while most institutional sectors will see a somewhat accelerated pace of activity.”

   

Tagged categories: Commercial Construction; Construction; Economy; Residential Construction; Spending

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