Building confidence at low point

Building confidence in the first quarter of 2011 is back at the lowest point it reached during the recession, according to the FNB/BER Building Confidence Index released on Thursday.

"Not only did the index decline to the same level of around 30 that prevailed during most of 2010, but it surpassed it and dropped to the lowest level in the recession," said Cees Bruggemans, chief economist at FNB, in a statement.

The index was 24 in the first quarter of 2011, dropping from 38 in the fourth quarter of 2010.

It was 24 in the second quarter of 2010, the lowest level of the recession.

The index can vary between zero - showing an extreme lack of confidence - and 100, showing extreme confidence.

It reveals the percentage of respondents who are satisfied with prevailing business conditions in six sectors: architects, quantity surveyors, building contractors, building sub-contractors, manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.

"Although some retreat was to be expected after the index jumped to a two year high in the fourth quarter of 2010, the size of the decline is much bigger than could realistically have been anticipated," said Bruggemans.

In the previous quarter, the increase was spurred by sectors at the start of the pipeline - planning (architects and quantity surveyors) and renovation (represented by the building material merchants).

"This boded well for the building industry, as an upturn in these sectors usually foreshadows a recovery in the actual construction of buildings."

However, confidence in these sectors "faltered unexpectedly" in the first quarter of 2011.

"The decline in the confidence of these leading sectors of the building industry is disappointing, as it signifies that it will take longer than previously expected for actual building activity to recover," said Bruggemans.

Other sectors in which the BER measures confidence - the manufacturing sector, retail trade, wholesale trade and motor trade Ä had all recovered from their recessionary low points and moved into positive territory above 50.

"Never before in the 36 year history of the BER's business confidence index has building confidence failed to reach its lowest point at the same time as the other sectors."

The confidence of building contractors was at 18, its lowest level in 11 years.

"However, it needs to be borne in mind that the current level is nevertheless higher compared to those registered during the previous three downturns, when building contractor confidence reached low points of nine in 1998, 11 in 1992 and one in 1985."

The drop in confidence was due mainly to the "unrelenting contraction" in building activity.

Non-residential building activity continued to retreat at a higher rate than residential activity, although the tempo of decline in non-residential activity eased somewhat and that of residential activity picked up slightly during the first quarter relative to the fourth quarter.

"The lack of demand for building work led to fierce tendering competition, which in turn continued to erode profitability and forced firms to keep on retrenching staff," said Bruggemans.

He said the latest index level had "dropped us in unchartered territory".

"Historically building contractor confidence recovers at the same time as the other sectors the BER surveys.

"Furthermore, a recovery in the leading building sectors (ie those involved in planning and renovation) usually foreshadows a rebound in actual building activity.

"At the moment none of these historical patterns hold true. So, this time around it has become impossible to foretell when the building sector is going to recover based on the historical evidence alone."

Sapa

Posted at 06:51AM Mar 11, 2011 by Editor in Industry  |  Comments[3]