PMI Shows Solid Reduction in Construction Activity

July 06, 2012 /

Conditions within the German construction sector continued to deteriorate in June. Output fell for the
third straight month on an accelerated decrease in new order intakes, and firms were generally
pessimistic about the prospects for a return to growth in the coming year. Despite this, employment
levels rose for the third time in four months. Another positive development was a reduction in cost
inflation to the slowest in almost two years.

The seasonally adjusted Germany Construction Purchasing Managers’ Index® (PMI®) – a singlefigure snapshot of overall activity in the construction economy – edged up from May’s reading of 44.7 to 46.0 in June, signalling a further, albeit slightly slower, decrease in overall building activity across Germany. Construction activity in the Eurozone’s largest economy has now fallen for three consecutive months.

In contrast with the overall trend in output, both residential building activity and civil engineering
work fell at faster rates during June. The latter posted by far the sharpest contraction of the
monitored sub-sectors, with the rate of decline steeper than the series long-run average. Commercial construction activity meanwhile decreased at a notably slower rate than that registered during the previous month.

The decrease in output levels in June reflected a further fall in new order inflows, which were down for the third month running and at the steepest rate since February. Reports from panel members noted a general decrease in demand, as well as a reduction in intakes of new business from the public sector.

Fearing further declines in new orders as a result of uncertain economic conditions in the Eurozone, Germany constructors were on balance pessimistic of a return to growth in the next 12 months in June. This ended a period of optimism in the sector that stretched back to February.

In spite of the negative trends in activity, new orders and business expectations, constructors operating
in Germany created jobs in June. The increase in employment contrasted with a stagnation in staffing numbers during the preceding month. Also contrasting with lower workloads in June was a rise in the quantity of materials purchased by German constructors. The increase in input buying was only marginal overall, but nevertheless led to a further deterioration in suppliers’ delivery performance. Vendors’ lead times lengthened sharply on average, and at a more marked rate than in May.

Input price inflation facing constructors in Germany eased for the third consecutive month in June to the
weakest since July 2010. Underpinning inflation were rises in the cost of a range of raw materials, according to the latest anecdotal evidence.


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