Building confidence up
Building contractors continued to face difficult conditions during 4Q2010. However, the increase in the FNB/BER building confidence index signals early stirrings in parts of the building industry, with a possible broader recovery in building activity from later in 2011 onwards
The FNB/BER building confidence index increased from 29 during the 3Q2010 to 38 during the 4Q2010. The 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 six sectors, namely architects, quantity surveyors, building contractors, building sub-contractors, manufacturers of building material (cement, bricks and glass) and retailers of building material and hardware.
This differs from the RMB/BER business confidence index which surveys many types of businesses in various sectors, and in the case of the building industry only incorporates building contractors.
In contrast, the FNB/BER building confidence index covers the whole building industry pipeline, from planning (represented by the architects and quantity surveyors), renovation (retail trade of building material) and production (manufacturing of building material) to the actual construction of buildings.
The 4Q2010 figure of 38 is the highest in two years. Bar the second quarter of 2010 (when the index reached a low point of 24), the FNB/BER building confidence index remained almost unchanged at 30 since the beginning of last year.
The rise in the FNB/BER building confidence index can be attributed to a recovery in the confidence of the sectors at the beginning of the pipeline, namely planning and renovation. In contrast, the confidence of the sectors at the end of the pipeline, namely building contractors and sub-contractors, remained unchanged at a low level.
"The higher income increases (due to high salary increases and falling inflation and interest rates) and the resultant elevated confidence levels of high income consumers (those with incomes in excess of R10 000 per month) stimulated additions and renovations, which boosted the sales of building material and hardware dealers," says FNB Chief Economist Cees Bruggemans.
A big part of this increased activity is not reflected in other closely watched indicators, as in many cases building plans do not have to be submitted or bank loans taken out. Given that a recovery in sales of building material have led a recovery in building activity in the past, the latest results once more point to an improvement in building construction further down the line.
Bruggemans says: "The confidence of residential building contractors reverted back to 20 (from 25 previously), as activity contracted at almost the same high rate compared to the third quarter. The confidence of non-residential building contractors declined to 18 (from 26 previously), as activity fell at an even faster pace.
The confidence of building sub-contractors remained unchanged at a low level (34 compared to 33 previously). Activity receded further, as barely any new work came through from contractors.
The rise in the FNB/BER building confidence index is encouraging as it provides the first indication that building activity could begin to recover later in 2011. The recovery in the building sector usually starts on the residential side, followed by the non-residential side about a year later.
Should the building sector start to recover from later in 2011 onwards, it will have lagged the overall economic recovery by about the same length in time as in the previous cycle. In the last recovery, the economy began picking up in 1999, but the building sector only followed in 2002.
Article by: www.iafrica.com