Construction recovery gains traction in 2Q2012 but:
An important feature of the recovery thus far has been the consistent rise in construction activity and during 2Q2012 activity accelerated more notably than in previous quarters. This activity stemmed from a number of sources:
As a result of the uptick in activity, firms have been able to raise tendering prices further, providing additional relief to their balance sheets.
Construction employment levels increased modestly in 2Q2012.
Overall profitability also improved. However, the increase in profitability was lower than the higher prices and increased activity would have suggested. "This is indicative of the type of rising cost pressures civil contractors are faced with," said Cees Bruggemans, chief economist of FNB.
Part of the cost increases can be explained by the improved employment levels during 2Q2012.
In addition to rising costs, respondents remained dissatisfied with the volume of new construction work available and they therefore still rate it as a significant constraint. Also, the lack of skilled labour is becoming even more of a concern and has increasingly been mentioned by the industry.
Regarding the construction survey's methodology, the confidence index can vary between a maximum of 100 (which indicates that all respondents were satisfied with prevailing business conditions) and a minimum of zero (indicating that all respondents were unsatisfied). A level of 50 indicates that the respondents are equally divided between those satisfied and dissatisfied. The current reading of 38, therefore, indicates that the majority of respondents remained dissatisfied with prevailing business conditions.
In conclusion, the recovery in the civil construction sector seems to have gained traction during 2Q2012 with activity levels increasing, however, rising costs, insufficient demand for new work and the shortage of skilled labour could hamper the pace of the recovery going forward. In other words, the recovery remains hesitant, potentially tempering confidence in future quarters.