Slight Gain In Building Confidence, But Deeper Decline In Civils – FNB/BER

Slight Gain In Building Confidence, But Deeper Decline In Civils – FNB/BER

The FNB/BER Building Confidence Index registered a gain of 4 points to 29 in 2Q2019, whilst the Civil Confidence Index remained close to an all-time low with a further – and deeper – decline in construction activity.

Although the FNB/BER Building Confidence Index dropped to an eight-year low of 25 in 1Q2019, the index rose 4 points to 29 in 2Q2019.

However, even with the improvement, the current level of the index indicates that more than 70 per cent of respondents are dissatisfied with prevailing business conditions.

During the quarter, four of the six sub-sectors registered higher confidence led by subcontractors. The confidence of architects was unchanged while that of quantity surveyors was lower.

The confidence of main contractors regained some of the losses registered in 1Q2019, rising to 30 from 23. “The somewhat higher confidence among main contractors was supported by a mild improvement in building activity. That said, activity still remains very weak,” said Siphamandla Mkhwanazi, Property Economist at FNB.

Sub-contractor activity growth also remained weak. Nonetheless, confidence doubled to 43, from 21 in 1Q2019. According to Mkhwanazi, “we could see confidence retreat once more next quarter as there is nothing in this quarter’s survey data to support their higher optimism”. Sub-contractors are later in the building pipeline than main contractors and it would be unusual, should that have been the case, to see the sub-contractor market improve without having first seen better conditions among main contractors.

Activity among quantity surveyors was also better. However, confidence dived to 16 index points in 2Q2019. “There are some signs that work for quantity surveyors increased, but profit margins became thinner. This likely weighed on confidence,” said Mkhwanazi.

The confidence of manufacturers of building material and hardware retailers was recorded at 22 and 24 index points respectively. In both cases activity (production for manufacturers and sales for retailers) deteriorated. This is in line with the still poor growth in building activity.

Overall, on an annual basis growth in building activity likely remained as weak as in 1Q2019.

In summary: “While building confidence is marginally higher, it still suggests that the vast majority of firms in the building sector are dissatisfied with current business conditions.

Moreover, activity among main and sub-contractors, which makes up the biggest share of sector activity, remains poor,” remarked Mkhwanazi.

However, the one green shoot is that architects are more or less as busy as usual (i.e. activity growth is close to its long-term average). “As we see it, a sustained improvement in the building sector will only occur if the property cycle moves away from the current environment of subdued growth in house prices and rentals (in the case of residential buildings) and high office and shopping centre vacancy rates and low rental return on investment (in the case of the non-residential sector),” Mkhwanazi argued.

On The State Of The Civil Construction Industry Mkhwanazi noted a further decline in civil construction activity 2Q2019 as the FNB/BER Civil Confidence Index gained one point following the all-time low of 10 registered in 1Q2019.

The current index level means that close to ninety per cent of respondents are dissatisfied with prevailing business conditions.

It’s disheartening that confidence has been so low for such a prolonged period. However, the reasons for the downbeat sentiment are clear from the underlying data. These include persistently weak activity growth and paper-thin profit margins,” said Mkhwanazi.

Statistics South Africa reported a 0.9% annual decline in the real value of construction works in 1Q2019. “The 2Q2019 survey revealed that the index measuring activity growth registered its worst level since 2010. This means that the slowdown in construction activity is expected to continue, and most likely intensify, in 2Q2019.” added Mkhwanazi.

In addition to the current weak demand, new demand is not really forthcoming. Mkhwanazi pointed out that “88% of respondents consider insufficient demand for new construction work, a proxy for order books, to be a constraint on their business operations

In summary: The FNB/BER Civil Confidence Index increased to 11, from 10 in 1Q2019. The continued low confidence is justified given the persistent decline in activity and the downbeat outlook.

The performance of the sector over the next few months will be determined by how the current fiscal constraints are addressed and whether or not this leaves room for increased public infrastructure spending. For now, the sense is that the scope for this is limited. However, there is still an opportunity for greater (policy) certainty in the mining and renewable energy sectors to boost private sector fixed investment. This could offset (in part) the effect of lower public sector capital expenditure,” said Mkhawanazi.

Building sector confidence falls further in 1Q2019

Building sector confidence falls further in 1Q2019

Confidence in South Africa’s building sector fell in the first quarter of 2019, with the building confidence index sponsored and compiled by First National Bank and the Bureau for Economic Research (FNB/BER) losing seven points to an almost eight-year low of 25.

The current level of the index indicated that 75 percent of respondents were dissatisfied with prevailing business conditions, FNB and the BER said.

Building activity growth has been contracting for the past few quarters, so such a sharp decline – on top of that seen in previous quarters – was really detrimental for confidence,” FNB property economist Siphamandla Mkhwanazi said.

After staying above 40 during the second half of 2018, the confidence of manufacturers of building materials fell by 24 points to 19 in the first three months of this year, marking the single biggest decline in four years.

The only positive from this quarter’s survey results was an uptick in confidence among architects to 36, from 26 in Q4 2018.

“Overall, the building pipeline suggests that building activity growth will continue to be under pressure in the short to medium term,” Mkhwanazi said.

The FNB/BER building confidence index can vary between zero, indicating an extreme lack of confidence and 100, indicating extreme confidence.

It reveals the percentage of respondents that are satisfied with prevailing business conditions in ix sectors, namely architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.

It covers the whole pipeline from planning to the actual erection of buildings by main contractors and sub-contractors. The fieldwork for the first quarter survey was conducted between January 28 and March 4.

Source: African News Agency (ANA)

In addition:

A broad-based weakening in activity pushes confidence down to worrying lows

The RMB/BER Business Confidence Index (BCI) declined by a further three points to 28 in the first quarter of 2019. This is the lowest level since the 27 index points recorded in the second quarter of 2017, and before that, the deep recession of 2009.

Relative to the fourth quarter, sentiment deteriorated in four of the five sectors covered by the RMB/BER BCI. The nine-point declines in the building and retail trade sectors were the largest.

Building confidence dropped from 32 to 23, the lowest level in eight years. This fall

can primarily be attributed to an across-the-board dearth of new work.

After rallying from 23 to 33 in the fourth quarter, retail confidence reset to 24 in the

first quarter.

These readings are the lowest levels since the onset of the present business cycle downswing in December 2013. The low confidence stems mainly from the persistent underperformance of the largest component, non-durable goods (mainly food and beverages). Similar to 2018, the surprisingly strong performance of furniture sales remained the only bright spark.

Although wholesale confidence declined by a relatively modest four points from 44

to 40, this conceals a massive deterioration in sales.

After hovering around 34 in the first half of 2018, manufacturing confidence

slumped to 26 in the third quarter before recovering to 30 in the fourth quarter. It

relapsed to 25 in the first quarter, as an abrupt drop in export sales hit

manufacturers on top of a faster deterioration in domestic sales.

The new vehicle trade is the only sector that registered an improvement in

confidence. Following the drop from 37 to 15 in the fourth quarter, motor confidence

rebounded partially to a still low 26. Car sales remained dismal.

Bottom line

South Africa will not be able to shift to a lasting higher growth and prosperity path withoutmore short-term pain”, said Ettienne le Roux, chief economist at RMB. This time around, the country cannot rely on the global economy to counterbalance such internal adjustment costs as global growth itself is now shifting to a lower gear.

Heartening rise in non-residential activity in 2Q2018

Heartening rise in non-residential activity in 2Q2018

But Building Confidence drops to below 30

The FNB/BER Building Confidence Index lost 14 points to register a level of 29 in 2Q2018 – the lowest since 2Q2012.

The Index indicates that the majority – more than 70 per cent – of respondents are dissatisfied with prevailing business conditions.

The confidence of main building contractors fell marginally by 4 index points to register a level of 37 in 2Q2018. This is more or less in line with the growth in building activity which remained largely unchanged. Interestingly, there was some discrepancy between the performance of the two sub-sectors, residential and non-residential building, especially in terms of activity.

Building activity for residential contractors was unmoved from 1Q2018 while that of non-residential contractors improved nicely. “This is the second consecutive improvement in non-residential building activity and points to a reasonably positive first half of the year. However, two important aspects should be noted. Firstly, 2016 and 2017 were dismal years for this sector so growth could be exacerbated by base effects. Second, the factors that typically drive non-residential building investment, such as GDP growth, are not yet in place and it would be prudent to view the improvement in non-residential building activity so far this year with caution,” said John Loos, Property Economist at FNB.

A steep 45-index point drop in the confidence of hardware retailers to 2 weighed on the overall building confidence index. According to Loos, “Sales volume growth of hardware retailers deteriorated noticeably in the quarter, contributing to the weaker sentiment. However, the fall in sales seems exaggerated given that building activity, especially among main contractors, remained more or less unchanged from the first quarter. This suggests that other factors such as constrained consumer spending or softer demand in the home renovations market may have negatively affected hardware retail sales”.

Similarly, production volumes of manufacturers of building materials were also significantly lower. This resulted in a fall in confidence to 13 index points, from 45 in 1Q2018.

Activity at the start of the building pipeline continues to produce mixed results.
The confidence of architects slipped to 40, from 43 in 1Q2018, while quantity surveyor confidence was unchanged at 31. However, quantity surveyors reported a marked uptick in activity in the quarter, albeit still relatively weak compared to recent history. According to Loos, “while these results inspire little confidence with respect to a resurgence in building activity going forward, it doesn’t suggest that the sector is entirely in the doldrums either”.

Sub-contractor confidence was stable at 52 index points in 2Q2018. Confidence was stable even though building activity growth showed a clear deterioration.

Conclusion: After rising by 12 index points in 1Q2018, the FNB/BER Building Confidence Index fell to 29 in 2Q2018. The decline was mainly due to the sharply lower confidence of hardware retailers and manufacturers of building material. Nevertheless, activity was – with the exception of main contractors and quantity surveyors – poorer in the quarter. “The continued rise in non-residential activity in 2Q2018 is heartening. However, this was offset by a noticeable fall in hardware retail sales, hardware manufacturing production, and
sub-contractor activity. This suggests slower overall growth in the building sector this quarter,” stated Loos.

The outlook is also uncertain. “The mixed results from the building pipeline suggest that if there is any upside potential for the remainder of the year, it will be limited,” said Loos.