The health of the construction industry improved further in the second quarter of 2024, building from the stabilisation seen in Q1 to signs of modest growth emerging in the three months April to June.

Product manufacturers’ sales increased in the quarter, marking the first rise in two years for heavy side producers, whose products and materials typically feed into the early, structural build phases. SME contractors’ workloads were also reported to have increased, which follows two quarters of decline, albeit driven by a sole sector – repair, maintenance and improvement (RM&I).

Workloads were reported to have still contracted in new build housing and commercial/industrial. Meanwhile, workloads for civil engineering contractors expanded a run of growth to 15 straight quarters, driven by the activity underway on major infrastructure projects, in the energy sector and on frameworks in regulated sectors such as water and sewerage. This sectoral split was echoed in chartered surveyors’ workloads in Q2: infrastructure continued to provide activity, whereas workloads were reported lower in housing, commercial and industrial. Underscoring that a pickup in activity is coming off the back of a period of subdued economic growth and strong inflation, with households and businesses also adjusting to an environment of higher interest rates, forward-looking indicators were largely positive, but tentative. Civil engineering contractors’ order books rose in Q2, along with chartered surveyors and product manufacturers anticipating growth in workloads or sales over the next 12 months.

SME contractors reported that enquiries still decreased in Q2, and in all three main sectors of operation, although the overall net balance was the best in a year. One key longer-term theme for the construction supply chain was pervasive in all the Q2 surveys: the labour force – whether it be cost pressures from wages and salaries, difficulties in recruiting or employment cuts.

FIS members can read the full Construction Trade Survey results from the Construction Products Association, here

The Construction Products Association’s latest State of Trade Survey showed early signs of recovery for the construction product manufacturing sector in the second quarter of 2024. Both heavy side and light side firms reported a quarterly increase in product sales volumes, although concerns remain over the near-term strength of demand and labour availability.

In 2024 Q2, a balance of 30% of heavy side manufacturers reported that sales of construction products increased, marking the first quarterly growth since 2022 Q2. Alongside this, 13% of light side manufacturers reported a rise in product sales.

Despite growth over the quarter, comparisons with a year earlier remained weak, reflecting two years of flatlining GDP growth and an extended period of interest rates being held at peak resulting in a significant reduction in demand from private housing new build and repairs, maintenance and improvement (rm&i). Manufacturers’ expectations for the next 12 months were positive in Q2, with growth expected by both the heavy side and the light side. Nevertheless, the strength of demand continued to register as a concern, whilst a record-high proportion of manufacturers flagged up concern over the availability of labour.

Rebecca Larkin, CPA Head of Construction Research said:

“After an extended period of declining sales, particularly on the heavy side, encouragingly we are now seeing the green shoots of recovery. For the heavy side this was the first quarterly growth recorded in two years and given this context, it is perhaps not surprising that sales volumes were still reported lower when comparing to a year earlier given the longer-running weakness experienced by product manufacturers feeding into a slower residential construction sector.

“Whilst cuts in interest rates are expected to be the catalyst for a recovery in the two largest sectors of construction, private housing and private housing rm&i, manufacturers continue to highlight both demand-side and supply-side challenges. In common with construction, one of the industry’s biggest longer-term issues will be attracting and retaining workers.”

Key survey findings include:

• A balance of 30% of heavy side firms and 13% of light side firms reported that construction products sales rose in 2024 Q2 compared with 2024 Q1, the first heavy side growth in two years
• Comparing 2024 Q2 with 2023 Q2, 30% of heavy side manufacturers reported a decrease in sales, on balance
• 56% of heavy side manufacturers and 23% of light side manufacturers anticipated a rise in sales over the next 12 months
• 57% heavy side manufacturers and 49% of light side manufacturers cited ‘demand’ as the key concern for sales over the next 12 months
• 29% of heavy side manufacturers also cited ‘labour availability’ as a concern, the highest proportion on record; this proportion was 27% for light side manufacturers
• All manufacturers reported an increase in wages and salaries compared to a year earlier

FIS members can access the full report here.

 

It was a mixed quarter for construction product manufacturing in 2024 Q1, reflecting the varying demand in the different sectors of the construction industry that manufacturers’ products feed into. Sales declined for a seventh consecutive quarter for heavy side manufacturers, whose products are typically used in the earlier, structural stages of construction. Along with lower house building activity and fewer large home improvements projects, persistent rainfall in February and March is likely to have affected outdoor work and heavy side demand during the quarter. In contrast, light side sales increased in Q1, marking a swing back into growth after two quarters of decline. Light side products are more likely to be used in the interiors and finishing stages of construction and, therefore, would have been less affected by the weather. Light side demand also continued to be buoyed by the strength of refurbishment activity across the commercial and industrial sectors, as well as energy-efficiency work under government-funded schemes such as the Social Housing Decarbonisation Fund. Encouragingly, both heavy side and light side manufacturers shared a favourable view when looking ahead, with sales growth expected in both the next quarter and the next year as the economic and construction recovery begins to take hold from the second half of the year.

Key survey findings include:

• 36% of heavy side firms reported that sales fell in 2024 Q1, the seventh consecutive quarterly decline
• Sales rose for 24% of light side firms, swinging back to growth after two quarters of decline
• 79% of heavy side manufacturers and 59% of those on the light side expect sales to increase over the next 12 months
• Demand remains the factor most likely to constrain output in the year ahead
• Cost inflation continued to moderate for heavy side firms, but light side firms reported cost pressures from wages & salaries

Construction firms are likely to experience mixed fortunes during 2024 and it will be highly dependent on which sectors they are operating in, according to the Spring CPA Construction Industry Forecasts. House builders and contractors working in housing new build and repair, maintenance and improvement (rm&i) continue to face a subdued environment. Conversely, firms operating in industrial, commercial refurbishment and fit-out or working on major infrastructure projects continue to enjoy strong levels of activity. Overall, after last year’s decline in activity (which is not reflected in the official ONS data), construction output is forecast to fall this year before recovery in 2025 and 2026 alongside stronger economic growth.

In terms of key risks to the forecasts, on the positive side, the possibility of earlier and faster interest rate cuts points towards slightly better economic prospects, which could benefit housing new build and rm&i. Conversely, on the negative side, an overly cautious Bank of England keeping interest rates high for longer may lead to an upward blip in mortgage rates, adversely affecting housing demand.

Total construction output is forecast to fall by 2.2% in 2024, a marginal downward revision from the 2.1% decline in the Winter forecast. However, output is forecast to rise by 2.1% in 2025, a marginal revision upward from 2.0% in the previous forecast. Further growth of 3.6% is anticipated in 2026, but clearly, there is greater uncertainty around activity in 2026 given the impacts of a potential new government on public sector spending plans, given that the government is the largest client in construction, accounting for around one-quarter of construction activity. Within the overall forecast figures this year, there are mixed fortunes across the different sectors. However, the key drivers of the decline in construction output in 2024 remain falls in both private housing new build and rm&i. There are positive and negative risks to the forecast for the UK economy and construction given the current number of political and economic uncertainties. As a result, alongside the forecast it is important to note the CPA’s Key Risks as well as the Upper Scenario and Lower Scenario, in addition to the forecast.