What's Happening?
The construction sector is experiencing a slowdown in its year-long decline, as indicated by the latest S&P Global purchasers’ managers index (PMI). The PMI for December registered at 40.1, a slight increase
from November's 39.4, though still below the 50 mark that signifies growth. This improvement comes after a significant downturn in activity, particularly in housing, commercial, and civil engineering sectors, which saw their greatest declines since May 2020. Despite the ongoing challenges, there is a noted recovery in business optimism, with more than a third of businesses expecting an increase in output in 2026. The sector is also benefiting from reduced inflationary pressures, as average cost burdens have risen at the slowest pace since October 2024.
Why It's Important?
The gradual improvement in the construction sector is significant for the broader economy, as it suggests a potential rebound in one of the key industries affected by the pandemic. The increase in business confidence and the slowdown in inflation could lead to more investment and development projects, particularly in the utilities sector, which has seen recent government investment. This could stimulate job creation and economic growth. However, the sector still faces challenges, such as fragile client confidence and subdued demand, which could impact the pace of recovery. Additionally, the potential for increased competition for specialist skills may pose a challenge as the number of projects increases.
What's Next?
As the construction sector positions itself for recovery, companies are expected to expand capacity and prepare to secure new projects. The anticipated increase in demand could lead to renewed pressure on labor availability, necessitating strategic planning to manage competition for skilled workers. The sector may also need to embrace AI and digital tools to handle an uptick in projects efficiently. The planning system will play a crucial role in managing the expected increase in project starts, and firms will need to adapt to these changes to capitalize on the improving economic conditions.
