The Construction Products Association’s latest State of Trade Survey reports continued growth in construction product sales during the third quarter of 2016. Sales increased for a fourteenth consecutive quarter, and in the first survey after the EU referendum, manufacturers moved from a pessimistic stance to an optimistic one regarding near-term prospects.
Rebecca Larkin, senior economist at the Construction Products Association (CPA), said: “Construction product manufacturers reported an increase in sales during Q3, suggesting that construction activity remained resilient following initial uncertainty in the run-up to, and immediately after, the EU referendum in June.
“A balance of 26% of heavy side firms reported a quarter-on-quarter rise in sales in Q3, although this was lower than the balance of 52% recorded in Q2. Quarterly sales rose according to half of manufacturers on the light side, which was the highest balance since 2015 Q1 and an increase from 38% in Q2.
“In contrast to pre-referendum pessimism evident in manufacturers’ forward-looking views in last quarter’s survey, expectations for near-term sales turned markedly higher in Q3. On balance, 45% of heavy side firms and 67% of those on the light side anticipated rising sales over the next three months and this optimism extends for performance over the next 12 months.
“Interestingly, the sharp depreciation in Sterling does not appear to have translated into an increase in export sales in our sector. Instead, the effect of the weak currency has been manifested in rising costs for imported raw materials and higher fuel bills, adding to the existing inflationary pressures on wages created by skills shortages. Nevertheless, manufacturers anticipated a pickup in overseas sales over the next 12 months.”
Annual consumer price inflation in the UK was 0.6% in August, unchanged from July. In Q3, cost increases were reported by 57% of heavy side construction product manufacturers, on balance, compared to 41% in Q2. Similarly, a balance of 56% of light side firms reported rising costs in Q3, increasing from 29% in Q2 and reaching the highest balance since 2013 Q4. Going forward, manufacturers’ cost pressures are expected to continue over the next 12 months, according to 73% of heavy side firms and 78% of light side firms.
Continuing the trend seen in the last two years, the key driver of cost inflation was wages and salaries in Q3, reflecting the impact of the rapid rise in demand for skilled labour. On balance, 75% of heavy side firms and 67% of light side firms reported that wages and salaries rose over the past year. Raw materials and exchange rates were also noted as a key driver of costs for both heavy side and light side firms. Following seven consecutive quarters of negative balances, fuel costs increased in Q3, on balance, for both heavy side and light side.