Marked Increase in Construction Product Sales but Future Still Uncertain

Sales of construction products rose significantly during the second quarter of 2010 and manufacturers are confident that they will continue to grow once again in the third quarter, according to the latest Construction Activity Barometer from Ernst and Young and the Construction Products Association. In the Barometer a figure of 50 represents no change in sales compared to a year earlier with below 50 representing a fall in sales. The second quarter’s overall result of 77 suggests that conditions for product manufacturers are improving. However, this comparison is drawn against 12 months ago when sales were at a historic low. Heavy side manufacturers rose to 79 in the second quarter, the highest level since the second quarter of 2007, while light side manufacturers were also positive with a score of 66. Looking ahead, the majority of construction products manufacturers expect their sales to continue to rise in the third quarter, compared with the same quarter one year earlier. Commenting on the results, Noble Francis, Economics Director for the Construction Products Association said; ‘This latest survey illustrates that the situation for the construction products industry is substantially better than it was one year ago but, with major public spending cuts looming, manufacturers fear that sales will fall sharply once again. With government capital expenditure set to be cut by £100 billion over the next five years there is a real danger that any recovery in the construction industry will be delayed. This would seriously impact upon manufacturers and suppliers of construction products, holding back a return to growth in the wider economy.’ Dominic McAra, a Director in the Ernst & Young’s Construction Products team added; ‘It is good to see confidence returning – although the comparison is to a bad quarter 12 months ago and is after a tough January / February 2010. This increased confidence has also been reflected in the return of transaction activity to the sector – even if this is still at a more subdued level than pre-recession. ‘The next six to twelve months will generate a challenge for the sector as the proposed capital cut backs take effect. Those companies with a restructured cost base, and re-financing in place, will be in the best position to deal with these challenges whilst still taking advantage of any private sector recovery.  Others may have to approach the next few months with more caution.’