Employment prospects in small and medium-sized enterprises (SMEs) in the construction sector are continuing to deteriorate, according to the latest State of Trade Survey from the Federation of Master Builders (FMB).
The FMB’s State of Trade Survey, the only one of its kind looking at construction SMEs, shows that in the second quarter of 2012 fewer people were being employed by more than a third of builders (37%). And the outlook is not bright, either, with 30% of companies expecting to reduce employment levels over the next six months.
The FMB survey results come as the Office for National Statistics reports a fall in construction output in the second quarter of 2012 of 5.2% (compared with the first quarter) after a fall of 4.9% in the first quarter, making it the most significant contribution to a further fall in overall Gross Domestic Product (GDP) of 0.7% in the second quarter. The Construction Products Association has forecast a decline in the construction industry for the whole of this year of 5.8% with, as things stand, a further fall of 1.3% next year.
Although some economists believe the June figures will be revised upwards in the weeks ahead, comparing the more reliable three months from March to May with the same three months a year earlier and adjusting for inflation shows the volume of construction output decreased by 7.4% – new work down 9.9% and repair & maintenance down 2.4%.
Brian Berry, Chief Executive of the FMB, says: “The results from the latest FMB survey are particularly depressing. After four years of continuous recession… we would hope to be seeing signs of a return to growth and new job creation, not on-going heavy job losses.”
"The problems affecting the construction sector pose real problems for the wider economy – not just because of the direct cost of unemployment but because of the impact on the industry’s skills base.
"Evidence from past recessions shows that when people leave the construction industry they tend not to return when the economy recovers. This leaves the construction industry short of skills, which in turn delays projects and forces up prices when demand returns to the market.
"To help create jobs and promote growth in the construction sector the Government needs to be making bolder policy decisions on a range of policy issues such as reform of the current procurement rules, incentives to promote the forthcoming Green Deal retrofit initiative and a targeted drive to increase house building.
"Construction industry procurement is a particularly onerous and costly process for small building companies and more must be done to prevent the exclusion of the small businesses that typically use local materials, local labour and promote the development of local skills.
"Both central and local government need to recognise that value for money is not just about the lowest cost.”
Construction Products Association comment:
Commenting on the Office for National Statistics figures showing the further decline in construction output, Noble Francis, Economics Director at the Construction Products Association, says:"Although the coalition has consistently made pronouncements of boosting UK construction and the economy, there is little sign of this in reality.
"Public sector housing output in May was 23% lower than a year earlier and in the three months to May was also 23% lower.
"Public non-housing output – which primarily covers education and health construction – during May was 20% lower than a year earlier and in the three months to May was 22% lower than a year earlier.
"Private commercial, the largest construction sector, continues to be the key bright area of construction. Commercial output in May was 2% higher than a year ago and in the first five months of the year was 1.3% higher than a year ago.
"However, this is not enough to offset the public sector cuts and, overall, in the first five months of the year, construction output was 5.4% lower than a year earlier, so prospects for the year as a whole are bleak.
"If government is serious about recovery in UK construction and the economy, it clearly needs to focus on getting a replacement for PFI sorted out immediately, getting work on the ground now by focusing on repair & maintenance and ensuring that the Green Deal becomes a success by giving householders greater incentives to invest in energy-saving improvements."
MPA figures add to the gloomy picture
The latest figures from the Minerals Products Association (MPA) add to the gloom of the construction industry. Aggregates, asphalt and concrete sales, by far the largest element of the construction supply chain, all showed further significant declines in the second quarter compared with the same period last year.
Sales of crushed rock fell 10% and sand & gravel 15%. Sales of the readymixed concrete fell by 13% and asphalt by 16%.
For the whole of the first half of 2012 sales of crushed rock, sand & gravel, ready mixed concrete and asphalt were 11%, 13%, 12% and 17% down, respectively.
The aggregates and concrete figures in particular are indicative of a significant decline in construction activity, and particularly new construction activity, during 2012. The rapid decline in asphalt sales reflects a dramatic decline in road construction and maintenance.
The fundamental problem is that, with some exceptions, private sector construction has declined this year and the impacts of the reductions in public investment in construction are now being felt in full. And it can only get worse with the loss of the Olympic projects.
Even infrastructure work is declining due to a collapse in road construction over the past 12 months. (Oiffice of National Statistics figures show road construction in the first quarter of 2012 was more than 40% lower than the average level of activity recorded throughout 2010 and 2011).
The MPA notes major regional variations. For example, readymixed concrete sales have remained stable this year in London and in some other parts of the South East following the strong growth recorded in the region in 2011. Elsewhere in Great Britain markets are generally extremely depressed.
Commenting on the results, Jerry McLaughlin, the MPA Director of Economics, says: “The dire results in the second quarter reflect the general market experience that construction activity has declined significantly in 2012.
“We are extremely concerned that there are few positive indicators in the market and our industry volumes are likely to decline this year below the levels experienced in the depths of the 2009 recession.
“We are also expecting further declines in construction and mineral products markets in 2013.
“These trends will inevitably cause construction to be a continuing drag on GDP growth throughout the year and into 2013 unless there is a rapid and significant reversal of cuts in public sector investment in construction.
“The announcements made by Government to support and encourage private investment in infrastructure projects are welcome and important, but will not have any significant impact on construction activity before 2014.
“Urgent action is necessary if we want construction to contribute positively to economic recovery over the next 18 months.”