Construction products sector cautiously optimistic

Heavy side construction products manufacturers expecting strong final quarter of 2018

CONSTRUCTION products manufacturing returned to business as usual in the third quarter (Q3) of 2018 after the weather-related pauses and subsequent catch-up in the first half of the year, and Britain’s £56 billion industry is cautiously optimistic that the year will finish strong with sales anticipated to pick up in the final quarter (Q4).

The Construction Products Association’s latest State of Trade Survey reveals that product sales, which act as an early indicator of wider activity in the UK construction supply chain, increased in Q3 2018. For heavy side manufacturers, 27% reported that sales increased, which was below the 40% that reported a rise in sales in a weather-boosted Q2, but in line with the average survey balance for 2017.

Manufacturers anticipate growth continuing in Q4, with 18% of heavy side firms expecting an increase in sales during the quarter. Manufacturers also reported that labour cost pressures began to subside in Q3. Two-thirds of heavy side firms reported an increase in wages and salaries, but this was the lowest balance since Q4 2013. In contrast, cost inflation for fuel and raw materials remained elevated.

Rebecca Larkin, senior economist at the Construction Products Association (CPA), said: ‘Given the unprecedented levels of economic uncertainty around Brexit and the weather-related distortions in the first half of the year, signs of a steady expansion in Q3 for construction product manufacturing and the building activity it delivers into are reassuring.

‘Manufacturers remain cautiously optimistic and expect sales to increase in the fourth quarter, but it will be the political developments in Q4 that are crucial in setting the backdrop for this to become a reality.

‘Cost pressures appear to have started easing on the labour side, but with continued weakness in Sterling and the upward march in global oil prices since May, manufacturers are still feeling the pinch when it comes to fuel and raw materials input costs.’

Key survey findings include:

• A balance of 27% of heavy side firms reported that construction product sales rose in the third quarter of 2018 compared with the second quarter.
• On an annual basis, sales also increased for 27% of heavy side firms
• On balance, 18% of heavy side manufacturers anticipated a rise in sales in the next quarter, decreasing from a balance of 50% in the previous quarter
• Overall annual cost increases were reported by 64% of manufacturers on the heavy side 
• Raw materials costs rose according to 82% of heavy side manufacturers 
• Fuel costs were reported higher by 90% of heavy side firms.