Press release

6 May 2020 London, GB

Purchasing managers report construction activity contracted at record rate in April as coronavirus impacted – EY ITEM Club comments

The construction Purchasing Managers' Index (PMI) fell back to a record low of just 8.2 in April from 39.3 in March and a 14-month high of 52.6 in February, thereby indicating substantial contraction.

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  • Construction activity suffered a substantial weakening in April according to the purchasing managers, as coronavirus-related restrictions increasingly hampered activity and construction sites were closed.
  • Specifically, the construction Purchasing Managers' Index (PMI) fell back to a record low of just 8.2 in April from 39.3 in March and a 14-month high of 52.6 in February, thereby indicating substantial contraction.
  • It was also the lowest reading of all of the April UK PMIs with services at 13.4 and manufacturing at 32.6.
  • All construction sectors saw record contraction in April as indicated by the indices: house building (7.3), commercial (7.7) & civil engineering (14.6).
  • All elements of the survey showed marked deterioration in April, with negative implications for construction activity in the near term at least. Most notably, new business contracted at a record rate by far. Confidence in the sector was at the equal lowest ever level (with October 2008).
  • The sector is also being hampered by supply chain problems.
  • The substantially weakened April set of purchasing managers’ surveys for the construction, manufacturing and services sectors all showing record declines in activity reinforces belief that the economy is headed for record quarter-on-quarter GDP contraction in the second quarter.
  • EY ITEM Club expects the economy to contract around 13% quarter-on-quarter in the second quarter on the assumption that there is some lifting of restrictions on activity during the quarter. We see GDP contracting 6.8% over 2020
  • Some construction companies have recently resumed operations so there should be some improvement in activity in May.
  • Further out, construction companies will be hoping that the government’s planned sharp stepping up of investment in infrastructure in the budget feeds through as quickly as possible to boost activity.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

The purchasing managers survey showed construction activity suffered a further substantial weakening of activity in April after a major relapse in March.

Specifically, the construction PMI weakened to a record low of just 8.2 in April after relapsing to a near 11-year low of 39.3 in March from a 16-month high of 52.6 in February. To put this into perspective, the previous record low was 27.8 in February 2009.

This took the construction PMI substantially below the 50.0 level which indicates flat activity. The first two months of the year had indicated that the construction sector was benefitting from increased client willingness to commit to new projects amid reduced uncertainties following December’s decisive General Election result. Reduced near-term Brexit uncertainties following the UK leaving the EU with a deal on 31 January also appeared to have helped matters.

Markit reported that 86% of respondents reported a decline in activity since March. This reflected widespread site closures and shutdowns across the supply chain in response to the public health emergency. Only 3% indicated faster activity.

New orders contracted at record rate

Boding ill for construction activity in the near-term at least, new orders fell at a record rate by far in April. The survey observed that this was due to suspension of contract awards due to business closures among clients, as well as uncertainty about the duration of stoppages on site and feasibility of starting new projects.

Construction activity was severely hampered in April by supply chain problems with closures at builders, merchants and stoppages of manufacturing production leading to widespread supply shortages. Average lead times for the delivery of construction products and materials was by far the steepest since the survey began in April 1997.

Confidence among construction companies was equalled the record low seen in October 2008. Employment in the sector declined at a record rate by far. Following on from the manufacturing and services surveys also showing record job losses, this further highlights the importance of the Government’s Coronavirus Job Retention Scheme.

Input prices rose at a modest rate.