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Industry decline continues but at slower rate amid talk of upturn

Latest figures for construction and manufacturing output from the Chartered Institute of Purchasing and Supply have led to talk of a potential upturn surfacing.

But despite the decline easing in the construction sector, the latest report on jobs from KPMG and Recruitment and Employment Confederation shows demand for construction workers is the lowest of all industries.

And the signs of optimism were also expected to be tempered by ONS new orders in construction figures out today. Recent new orders figures have given cause for serious concern about future workloads.

The construction purchasing managers index for July from CIPS and Markit Economics posted an industry activity reading of 47.

While the figure is still a decline, with any figure below 50 indicating contraction, it is the slowest rate of decline for 16 months and up on June’s figure of 44.5.

And it follows CIPS’ figures for manufacturing, also out this week, which jumped to 50.8 in July, up from 47.4 in June and indicating the first rise in manufacturing activity in 16 months.

CIPS’ survey revealed commercial and civil engineering posted slower rates of decline during July, but housing construction registered an accelerated rate of contraction in the month.

Optimism about future activity levels in twelve months’ time continued to increase in July, reaching its highest level since April 2007.

CIPS said many construction companies in the UK believe that economic conditions will improve and lead to higher sales.

CIPS chief executive David Noble said: “Optimism is returning to the UK construction sector on the back of a perceived improvement in economic conditions.

“Whilst the current situation still looks very bleak, an upturn looks much closer than it did just a few months ago.

“However, times are still tough as steep competition and difficult market conditions pushed the sector into its seventeenth month of retrenchment.”

Royal Institute of Chartered Surveyors chief economist Simon Rubinsohn said that while output is unlikely to fall very much further from here, the “recovery from this point will in all probability be quite drawn out”.

He added: “More encouraging was the forward-looking indicator with firms showing greater confidence about the outlook than at any point over the last two years.”

But new construction orders figures for June from the Office for National Statistics out today are expected to reveal further concerns about future workloads.

Orders in the three months to May 2009 fell by 1 per cent compared with the previous three month period and by 30 per cent compared with the same period a year earlier.

Construction Products Association economics director Noble Francis said that first quarter construction output figures had seen the sharpest fall on record so it was no surprise that further declines were less steep.

He added that it was “overly optimistic” to talk of upturns and optimism returning to UK construction.

“Second quarter figures for economic activity highlight a further (and worse than anticipated) fall in economic activity,” he said.

“The Association’s state of trade survey published next week is expected to highlight further significant falls across construction and product manufacturing.”

Meanwhile CIPS said the length and depth of the economic downturn continued to be felt strongly in employment levels with construction firms in the UK cutting their workforces for the fourteenth month running.

The latest REC report on jobs revealed demand for permanent and temporary construction workers fell by more than for any other industry.

Demand for permanent workers in July fell to 35.2 from 46.7 a year ago – with anything below 50 indicating decline.

Demand for temporary and contract staff fell to 38.5 from 47.4 last year. Only the medical sector reported an increase in demand for workers.

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