Construction product manufacturers have reported an eighth consecutive quarter of sales growth, the Construction Products Association (CPA) has reported in its Q2 State of Trade Survey. Despite this positive news, the CPA warned of dampened expectations for the year ahead.
Though 30% of heavy-side manufacturers and 17% of light-side manufacturers reported product sales increasing compared to 2022 Q1, all heavy side firms and 94% of those on the light side reported an annual rise in costs. For the heavy side, Q2 was the fourth consecutive quarter of universal cost increases, including fuel, energy, raw materials and labour.
Demand is likely to be the key constraint on activity going forward, despite rising inflation, manufacturers cited. This led to the first negative balance for expected sales since mid-lockdown in 2020. On balance, 30% of heavy-side firms surveyed by the CPA, whose products tend to feed into the earlier stages of construction, anticipate a decrease in sales in Q3. One third anticipate a fall in 12 months. 11% also envisage a labour force decrease in the year ahead. Overall, the CPA’s Q2 survey results provide the first indication that the inflationary backdrop is now starting to impact on confidence around the near-term outlook for construction.
Rebecca Larkin, the CPA’s senior economist, said: “In recent quarters, construction product manufacturers have reported escalating inflationary pressures across fuel, energy, raw materials and wages. Added to this, there are early reports that higher costs further down the supply chain for transport, insurance, reverse-charge VAT and the removal of the red diesel rebate are starting to be reflected in lower confidence and delayed decision making for new construction projects.
“Demand currently remains strong, particularly in the housing, renovation maintenance and improvement, industrial and infrastructure sectors. But the headwinds related to costs are intensifying. Consumer price inflation is yet to peak too, which poses a downside risk if households and businesses rein in spending as disposable incomes and margins are eroded.”
Key survey findings
• 30% of heavy-side firms and 17% of light-side firms reported that construction products sales rose in Q2 compared with the previous quarter. This is the eighth consecutive quarter of growth.
• Sales balances weakened from 43% (heavy side) and 50% (light side) in Q1.
• 30% of heavy-side manufacturers anticipate a fall in sales in Q3. 17% of light-side firms expect an increase, the lowest balance since the first national lockdown in 2020 Q2.
• Costs for fuel, energy, raw materials and wages and salaries rose for all heavy-side manufacturers.
• Costs are expected to increase over the next year, according to balances of 78% on the heavy side and 94% on the light side.
• Weaker hiring intentions were reported by both heavy- and light-side manufacturers
