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Building output to fall for two years as lightside slows

The worsening economic position of construction manufacturers and contractors is expected to persist throughout 2009 and into 2010, according to the Construction Products Association.
The huge falls in private housing and industrial sectors this year are likely to be replicated by the commercial sector during 2009 and 2010, the Construction Confederation Trade Survey suggests.

The Survey, which covers the third quarter of 2008 reports further gloom for the industry. Heavy side manufacturers have seen sales volumes falling thanks to the depressed housing market and slowing of the commercial sector, but light side manufacturers are also begining to suffer for the first time.

Key survey findings are:

>· Both light side and heavy side manufacturers are suffering falls in sales. Contractors suffering falls in output, not just housing, but across all sectors.

· Sales as well as anticipated output expected to fall considerably further. In housing, 75% of contractors expect further falls – a sector that has already suffered greatly.

· Costs rising for contractors with increases in raw materials as well as energy/fuel costs. For manufacturers, this is our first survey that shows 100% of both light side and heavy side manufacturers experiencing significant cost increases.

· 50% of light side manufacturers are operating at less than 60% capacity compared to only 5% one year ago.

“The economic slowdown began in August 2007 with deterioration in the financial sector, which significantly affected credit availability. As a consequence, the construction sector most affected by the slowdown initially was the one most dependent upon credit and with a relatively short lead time – private housing,” said Noble Francis, CPA economics director.

“Our forecasts indicate that private housing starts this year will fall 39%, leaving housing starts at the lowest levels since 1945. Our latest survey mirrors these forecasts with a net balance of 52% of contractors stating that sales had fallen in the private housing sector. Despite the government’s attempts to address the problems in housing by bringing forward finance for social housing, 41% of contractors have reported that sales fell in public housing.

“Although the housing market has experienced the worst effects of the economic slowdown, the industrial sector has now also fallen sharply, with 37% of contractors reporting that output is lower than it was 12 months earlier and we expect the output in this sector will fall by 22% in 2008. The commercial sector has also seen a slowdown. Initially buoyed in the first half of 2008 by good levels of orders in offices and retail during 2006 and the first half of 2007, workloads began to slow in the second quarter of 2008 and have slowed further in our latest survey.

“Both for contractors and manufacturers, the downturn in workloads has occurred at the worst possible moment, with costs rising and profit margins falling. It is clear that construction as a whole is currently under great pressure and both this survey and the Association’s latest forecasts imply that this is unlikely to ease in the near future.”

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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