Product manufacturers reported an eighth successive quarter of sales growth in Q2, according to the Construction Products Association’s State of Trade Survey, but expectations have been dampened by accelerating cost inflation.

Within the overall, RMI is among those sectors showing strong demand but the report adds that headwinds relating to costs are intensifying.

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 anticipate a decrease in sales in Q3 and one-third anticipate a fall in 12 months. As a result, 11% also envisage a decrease in their labour force in the year ahead.

CPA senior economist Rebecca Larkin 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.”

Key survey findings include:

  • A balance of 30% of heavy side firms and 17% of light side firms reported that construction products sales rose in Q2 compared with the previous quarter, the eighth consecutive quarter of growth 
  • Sales balances weakened from 43% (heavy side) and 50% (light side) in Q1 
  • 30% of heavy side manufacturers anticipate a fall in sales in Q3, whilst 17% of light side firms expect an increase, the lowest balance since the first national lockdown in 2020 Q2 
  • Costs for fuel, energy, raw materials and wages & salaries rose for all heavy side manufacturers 
  • Costs are expected to increase over the next year according to balances of 78% on the heavy side and 94% on the light side 
  • Weaker hiring intentions were reported by both heavy side and light side manufacturers 

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.

State of Trade Survey – 2022 Q2.pdf

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