Construction falls for fifth successive month

Monday, 04, Aug 2008 11:17

More negative news for the construction industry today, as the Construction Managers Index (CMI) reports activity contracted for a fifth successive month in July.

Indeed the index recorded the sharpest correction since its origin in 1997, falling to 36.7 in July, from 38.8 in June.

This is also significantly down on the figure of 43.9 recorded in May, the 56.0 at the end of 2007 and a peak of 64.8 in August 2007, just before the onset of the credit crunch.

The index first moved below the 50.0 level, which indicates unchanged activity, in March this year.

A decline in residential activity was the prime force driving the market downwards.

Specifically the housebuilding index indicated activity in the sector contracted massively in July, and for the eighth month running.

The index dropped to a record low of 18.7 in July, from 25.6 in June, 32.7 in May and 40.3 in April.

This again represents a level 31.3 points below the 50.0 level that represents unchanged activity.

"Housebuilders are being hit extremely hard as housing market activity and house prices crumble in the face of elevated affordability pressures, very tight lending conditions and low buyer interest," explained Howard Archer of analysts Global Insight.

However, in one ray of light, commercial developments in the south-east of England are spurring the market in the region.

These developments include the preparations for the Olympic Games and the Crossrail project.

"The purchasing managers' survey suggests the contraction could be even deeper in the third quarter," continued Mr Archer.

"There can therefore be little doubt that the construction sector is now firmly in recession.

"Indeed, with housing market activity and prices continuing to head south, the commercial property sector in dire straits and government finance for infrastructure projects limited, the construction sector looks to be in for an extended, very difficult time."

Chris O'Toole