FNB: confidence returning

Building confidence rose slightly in the third quarter of 2009, FNB said on Tuesday as it released its Building Confidence Index (BCI).

The index increased slightly from an index value of 30 in the second quarter of 2009 to 32 in the third quarter.

Of the six sub-components of the FNB BCI, three registered a rise, while declines were recorded in the remainder during the third quarter.

The index found that compared to the second quarter 2009, improvements in confidence levels were recorded among building contractors (+1), manufacturers (+23) and retailers of building materials (+13).

On the other hand, declines occurred in the case of architects (-7), quantity surveyors (-4) and building subcontractors (-15).

FNB chief economist Cees Bruggemans said a closer analysis of the survey data showed that the downward spiral in the residential sector was probably close to a bottom.

The normalisation of the de-stocking cycle of building merchants at the retail level had resulted in improved demand experienced by manufacturers of building products, he said.

"In contrast, the downswing in the non-residential sector is still firmly in place, hence the weakening of building confidence in the case of architects, quantity surveyors and non-residential building contractors," Bruggemans said.

He said the business confidence of residential contractors increased marginally from a low 17 in the second quarter of 2009 to 19 in the third quarter.

"This marginal recovery in confidence levels could well point to the private residential building cycle reaching a lower turning point.

"Business conditions turned out in line with expectations, although much weaker than the same period a year ago," he said.

Growth in building activity remained very sluggish during the third quarter of this year, but it showed a marginal improvement compared to the situation in the second quarter of 2009.

He said that given the weak state of the effective demand for residential buildings, the tendering environment remained very tight and competitive.

"In a sector known for intense adversarial tendering during periods of slowdown in the overall business cycle, respondents indicated that the overall growth in profitability of enterprises remained under severe pressure."

He said in this regard, a net 84 percent of the respondents to the survey reported lower profit growth than in the same quarter a year ago.

With the downdraft in residential building activity levels seemingly at long last arrested, respondents also indicated that they had not engaged in further extensive retrenchment of labour during the third quarter of 2009.
Turning to short-term prospects for the residential sector, Bruggemans indicated that contractors expected business conditions and the growth in building activity to show improvement in the fourth quarter of 2009.

He said after a sharp drop in the business confidence of non-residential building contractors in the second quarter of this year, a further marginal decline was recorded in the third quarter of 2009.

Compared to an index value of 36 in the second quarter of 2009, it declined to 33 during the third quarter of this year.

According to Bruggemans the growth in building activity notably underperformed expectations during the third quarter 2009 and showed a marginal deterioration compared to the preceding quarter.

A net 75 percent of survey respondents indicated that the growth in workloads was below that of the same quarter a year ago.

He observed that with a net 76 percent of survey respondents indicating insufficient demand for building work as a constraint on their business operations, tendering competition intensified during 2009's third quarter.

As a result, the growth in profitability of respondents remained under pressure and notably underperformed expectations expressed at the time of the previous survey.

He said a positive aspect of the survey results was that labour shedding appeared to have stabilised.

Nevertheless, a net 49 percent of respondents indicated that their employment levels were below that of the same quarter a year ago.

Bruggemans said survey respondents did not expect business conditions to deteriorate extensively in the fourth quarter of 2009.
The FNB Building Confidence Index is compiled quarterly from the building, manufacturing, and retail opinion surveys undertaken by the Bureau for Economic Research at Stellenbosch University.

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