Materials and Staff Shortages Hold Back Construction in September Slowdown

SEPTEMBER DATA revealed another growth slowdown in the construction sector, with output volumes rising to the smallest extent for eight months.

The slowing growth reflected softer demand conditions than the peak seen earlier in the summer. Survey respondents also cited disruptions on site from unavailable transport, a severe lack of materials and continued staff shortages.

Subcontractors

A rapid drop in sub-contractor availability was reported in September. Imbalanced demand and supply contributed to the steepest rise in sub-contractor charges since the survey began in April 1997. Some firms noted that the unpredictable pricing environment had slowed clients’ decision-making on new orders and led to delays with contract awards.

September Slowdown

At 52.6 in September, down from 55.2 in August, the headline seasonally adjusted IHS Markit/CIPS UK Construction PMI® Total Activity Index dropped further below the 24-year high seen in June (66.3).

The latest reading signalled only a moderate expansion of total construction output and the weakest speed of recovery for eight months. Reports from survey respondents linked the slowdown to a combination of supply chain issues and softer demand.

All three broad categories of construction activity saw a loss of momentum in September, with the biggest slowdown seen in civil engineering (51.0, down from 54.8 in August). House building also decelerated in September, with the latest expansion the weakest since the recovery began in June 2020 (52.8). This left the commercial segment (53.6) as the best performing category during September. Resilience in this sub-sector reflected a continued boost to order books from the reopening of the UK economy.

New Work

Construction companies recorded a moderate increase in new work during September, with the rate of growth easing sharply to its weakest since the start of 2021. The slowdown was linked to hesitancy among clients and less favourable demand conditions.

Employment

September data indicated another strong rise in employment numbers across the construction sector, driven by greater workloads and stretched business capacity. However, the latest rise in staffing levels was the least marked since April, which partly reflected long wait times to fill vacancies. A lack of sub-contractor availability added to the squeeze on labour supply in the September slowdown. Shortages of sub-contractors also led to additional cost pressures, with rates charged for sub-contracted work increasing at a survey-record pace.

Purchase prices increased rapidly in September, although the rate of inflation eased further from June’s all-time peak.

Costs

Around 78% of the survey panel reported a rise in their cost burdens, which was mostly linked to supply shortages and transport surcharges.

Outlook

Meanwhile, the latest survey illustrated that construction firms remained highly upbeat about the business outlook. Just over half (51%) forecast rising output, while only 8% anticipate a decline. However, the degree of confidence was weaker than August amid some concerns that the supply chain crisis will hinder growth.

Comment

Tim Moore, Director at IHS Markit, said: “September data highlighted a severe loss of momentum for the construction sector as labour shortages and the supply chain crisis combined to disrupt activity on site.

“The volatile price and supply environment has started to hinder new business intakes as construction companies revised cost projections and some clients delayed decisions on contract awards. As a result, the latest survey data pointed to the worst month for order books since January’s lockdown.

“Shortages of building materials and a lack of transport capacity led to another rapid increase in purchase prices during September. There was also a considerable decline in the availability of sub-contractors, with survey respondents citing shortages of bricklayers, drivers, groundworkers, joiners, plumbers and many other skilled trades. Measured overall, prices charged by sub-contractors increased at the fastest rate since the survey began in April 1997.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

“Construction activity suffered another setback in September, as builders were hammered by staff and

material shortages, delivery delays and higher business costs as this phase of the post-pandemic recovery became the shakiest for eight months.

“Housing and civil engineering bore the brunt of the slowdown with residential building the weakest since

June 2020 during the early stages of the pandemic. The increases in shortages also affected project agreements with a sharp fall in new order growth, where customers hesitated to commit, uncertain about prices and the timing of completion. Over 60% of supply chain managers said their deliveries were taking longer and 78% were paying more for their goods as inflation remained stubbornly high.

“Good news for job seekers though as the demand for skilled labour remained unabated, and companies were

left wanting more. Sub-contractors were unable to fill the widening gap of need as their availability shrank and prices charged accelerated to record levels. Unless stronger supply  chain performance is nailed down along with headcount, we are heading towards a stagnant autumn because the sector is certainly not on an even footing at the moment.”

Industry Comments

Storm has broken

Gareth Belsham National Head of Building Consultancy, Naismiths

Gareth Belsham, director of property consultancy and surveyors Naismiths, said: “The perfect storm that had been brewing for several months has finally broken over the construction industry.

“Serious shortages of key materials and skilled workers have been pushing up prices and increasing delays since spring. But in September the fuel crisis threw a further spanner in the works, preventing both staff and deliveries from getting on site.

“On the construction front line, things are far more serious than the ‘stresses and strains’ the Prime Minister says are a normal side effect of rapid growth.

“There are worrying signs that the supply side issues are starting to crimp demand too. According to September’s PMI data, output growth has slowed to its slowest pace for eight months, and the number of new orders coming through the door has shrunk to its lowest level since the start of the year.

“Cool heads in the industry have seen this all before, and experienced developers and builders are recalibrating prices and schedules and getting on with it.

“But things are getting steadily tougher and while there’s still plenty of optimism in the industry, the summer’s easy boom times are firmly in the rear-view mirror.”

Prompt Payment and Collaboration

Fraser Johns, finance director at Beard

Fraser Johns, Finance Director at Beard said: “Today’s stats show the construction sector is still being significantly hampered by labour shortages and supply chain issues.

“With output volumes rising by the smallest extent for eight months, and a rapid drop in sub-contractor availability, strong relations with suppliers have never been more critical.

“To build these relationships and to reassure clients, contractors need to ensure prompt payment and regular collaboration with suppliers is fundamental to all projects.

“Inflationary price pressures and supply shortages continue to hinder new business, with clients re-considering decisions in the current environment.  This may continue until such pressures begin to ease, a time period which is still unclear.”

Labour Demand Relentless

Ian Cooper Director at DWF

Ian Cooper, Director at global legal business, DWF, said: “Understandably, some construction businesses may be holding off on construction decisions until the market conditions show some signs of stability.

“On the flipside the confidence of construction firms remains high and this is good news for job seekers as the demand for skilled labour is relentless.

“Aligned with the current experience of other industry sectors, skilled labour supply chain issues remain a challenge for construction. However, this also reveals opportunities for increased productivity initiatives such as pre-fabricated / off site construction.”

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