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Construction PMI. Up, Up and Away?

It’s easy to get excited by one piece of data (and lots of people will). The Markit/CIPS construction figure for July registered 57.0, the highest it has been in three years. Anything above 50.0 is growth so it is good news, but let’s not get too excited. It is a relatively small sample and tends to bounce around. Still, growth is growth, so I won’t be too dismissive.

 

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Looking across the different sectors it is clear that housing was the primary driver of growth in the index, as it was last month too. However, for the first time this year there was growth in the commercial and civil engineering (infrastructure) side of business. Given Funding for Lending and the controversial Help to Buy, following on from FirstBuy and a vast array of other help, it is no surprise that housing is the primary driver of growth at the moment and will likely remain so over the next 12-18 months.

 

Click image to enlarge

The key issue is whether infrastructure and commercial, the largest construction sector, will continue to grow over the course of the year. One data point won’t tell us that. Infrastructure is dependent on whether government announcements over the last two years are delivered into work on the ground - something that hasn’t happened so far. Commercial recovery is dependent upon whether we see an improvement in UK economic prospects, which we have done, and business investment, which we haven’t.

So, overall it is growth and we’re all glad for it, but it’s another matter entirely whether this growth is sustainable outside of housing.

By Noble Francis at 2 Aug 2013, 15:30 PM

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