Eighth straight quarter of growth but expectations for year ahead dampened as costs start to bite
CONSTRUCTION product manufacturers reported an eighth straight quarter of sales growth in the second quarter (Q2) of 2022, according to the Construction Products Association’s State of Trade Survey. However, combined with another quarter of broad and accelerating cost inflation, expectations have been dampened for the year ahead.
In Q2, 30% of heavy-side manufacturers and 17% of light-side manufacturers reported that product sales increased compared with 2022 Q1. Alongside this, all heavy-side firms and 94% of those on the light side reported an annual rise in costs. For the heavy side, this was the fourth consecutive quarter of universal cost increases that span across inputs such as fuel, energy, raw materials, and labour.
Against a broader economic backdrop of rising inflation, manufacturers cited that demand is likely to be the key constraint on activity going forward, leading to the first negative balance for expected sales since mid-lockdown in 2020. On balance, 30% of heavy-side firms, whose products tend to feed into the earlier stages of construction, anticipate a decrease in sales in Q3 and one-third anticipate a fall in 12 months.
Rebecca Larkin, the Construction Products Association’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.’
She added: ‘Demand currently remains strong, particularly in the housing, RM&I, 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.’
Overall, the 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.