einsidetrack : Building Construction News - Recession set to be deep and long despite some encouraging signs by Brian Green

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(Free-Press-Release.com) October 23, 2009 -- ....in the fact that it trimmed its view of how far the industry is set to fall. However, it is by no means all good news...

....the CPA's forecasters now expected a peak-to-trough fall of about 16 per cent as against the 20 per cent they were suggesting in the summer.

The main reason for this is the infrastructure has performed stronger than expected and the housing market appears to be settling and the signs of uplift are stronger than they were.

For the building services sector, the areas where it receives most of its work are seen to be pretty much as bad this autumn as they were when the forecasters sat down to debate the industry's prospects in the summer.

But the real message in the forecasts is that, while the drop may not prove to be as bad as was thought in darker days a few months ago, the recession will be deep and is likely to last for a long time. This is set to be a grinding recession.

The graph shows the impact of trend growth from the bottom of the recession. The industry should be prepared to spend the next 12 years rebuilding its volumes. In the previous recession it took best part of 13 years to return to the volumes reached in 1989.

It is against this context that the distraction of short-term changes and bounces in optimism should be judged.

The recent survey from the buyers' body CIPS (Chartered Institute of Purchasing and Supply) provided a gloomy view of industry activity with its main index showing quite strongly negative in October, measuring 46.7 against a no change position of 50. But his comes just a few months after the index led its analysts to point to "green shoots".

The reality as the recession unfolds there will be room for optimism within certain niches, there will be cause for great concerns elsewhere. But looking across the broad sweep of the industry the prospects will be driven by a few powerful forces. Some of these we can gauge reasonably well others we can't.

Three of the more powerful influences on the volume of construction work are:

* The level of unemployment and the pace of increase
* The speed at which public funding recedes
* The level and pace of increase in confidence within the property market

Looked at brutally, there may be glimmers of hope, but a realistic view would be that these are not forces that will turn positive in the near term.

It is clear that we have not yet seen the worst of unemployment. The political party conference round has been almost obsessively focused on how to cut and how quickly to cut public spending, so we can expect savagery within budgets funded by the public purse. The only question appears to be the speed at which they might take effect.

The upturn in fortunes appears then to rest on how quickly growth returns to the private sector. There are glimmers of hope, but only the most wildly optimistic would describe these hopes as anything other than fragile.

There are signs that housing may be experiencing the first signs of a little blip upward in activity on the horizon. However much of this can be put down to the work and funding of the Homes and Communities Agency.

The signs are that the house builders will remain extremely caution over expanding production into a market with the high risks associated with rising unemployment.

The commercial sector, which represents the biggest sector for many building services businesses, is not expected to see meaningful growth until 2012 in the view of the Construction Products Association forecasters.

But for the building services industry the volume of work is but part of the picture, of greater concern is the impact that falling volumes will have on the prices paid for work against a backdrop of uncertainty over cost inflation.

The latest tender price forecast from the cost information service BCIS suggests that tender prices could fall peak-to-trough by 15 per cent if there are deep cuts in public spending or if the uplift in work from private sector clients is sluggish.

This needs to be set against the general impression of growth elsewhere in the world. With many of the products used by building services firms traded globally there is a danger of firms being squeezed by falling workloads and falling prices on one side and rising cost on the other.

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