The Mineral Products Association responds to suggestions that the construction recession is bottoming out and warns against cutting government investment.
Virtually every time a set of data is published there is potential for a "green shoots" story. The broad scope of construction seems a particular target for this. Last week we saw references to some improvements in building materials sales as indications that markets are bottoming out, there are positive noises about house prices and other housing indicators – so is the construction recession bottoming out?
In a word – no. Housing indicators are generally better if still very fragile, but housing accounts for less than 15 per cent of construction output. The overall balance is negative and getting worse. Look at some big picture data:
- Orders placed for new construction work in the first half of 2009 were 30 per cent worse than the same period of 2009.
- Construction output is likely to show a record decline of 16 per cent this year followed by another five per cent fall in 2010, according to the CPA.
- Housing starts will be the lowest this year since 1924 (so from this base we would expect some improvement).
- Materials used across the sector such as aggregates, cement and concrete are running 30 per cent down on last year.
Will there be a quick recovery? Again, no. The economy will flatten out by the year end, and construction some time in 2010. But financial problems will linger. The Bank of England is having to keep expanding money supply because the cash is sticking with many of the banks, and there are fewer banks in the market anyway because overseas banks have gone home. So why would credit conditions ease significantly? Good question.
And then there are the public finances. Everyone expects a new government to take drastic action and the existing government is already planning to cut net public investment by 50 per cent over the next four years. How depressingly typical that the policy response to economic and financial problems is to cut investment. The challenges we face include:
- Growing housing demand, now estimated to require up to 290,000 new homes every year compared with 100,000 this year.
- Transport networks which remain largely second rate.
- A desperate need for new low carbon energy generation and infrastructure.
So cutting investment over the next few years is exactly the wrong thing to do. But from where we stand now any positive news for construction is still outweighed by big negatives and there isn't going to be a quick or an easy recovery in activity or employment. Green shoots can lead to delusions if smoked, so treat with caution.
