Building Confidence Index improves for the third consecutive quarter

The First National Bank (FNB)/Bureau for Economic Research (BER) Building Confidence Index improved for the third consecutive quarter, rising by three points to 43 in the first quarter of this year.

This marks the highest confidence in more than a year, FNB property economist John Loos said in a statement on Thursday.

“However, even though confidence improved, the current level of the index indicates that most respondents are dissatisfied with prevailing business conditions,” he pointed out.

The confidence of main contractors recorded a level of 42 index points in the first quarter, six points lower than in the fourth quarter of last year.

The drop in overall confidence was largely owing to lower confidence among residential contractors, while nonresidential contractor confidence was largely unchanged.

According to the survey, the fall in residential contractor confidence was on the back of weaker building activity and keener tendering price competition.

“For the past few quarters, the trend in the residential building sector has been broadly up in terms of activity, while that of the nonresidential contractors has deteriorated. This quarter, it seems that the residential contractor segment is also under pressure,” he said.

Although the confidence of nonresidential contractors remained largely unchanged, this was not supported by the underlying indicators.

“Building activity and overall profitability fell sharply and are at their worst levels since early- to mid-2011. This suggests that the sector is in deep distress and that confidence should have been much lower,” noted Loos.

Building materials manufacturer confidence registered the biggest jump, from 10 to 25 index points in the first quarter.

“Domestic and export sales fared well during the quarter and the jump in confidence is supported. However, looking at the rest of the building sector, it is difficult to pinpoint where these goods are being used,” stated Loos.

Business confidence among architects rose to 55 index points during the quarter.

The confidence of quantity surveyors shed three index points to also register a level of 55.

“Activity at the start of the building pipeline remains reasonably robust, so it is understandable that the confidence of architects and quantity surveyors is above 50. However, this may not necessarily translate into actual building work going forward,” stated Loos.

After slipping to 29 index points in the fourth quarter of last year, the business confidence of hardware retailers regained eight points to register a level of 37 in the first quarter of this year. 

“Confidence was higher despite a sharp slowdown in sales and profitability during the quarter, reflecting the broader weakness in consumer spending”.

Subcontractor confidence shed one index point to reach a level of 42.

For much of 2016, the survey suggested that the residential sector experienced moderate growth while the nonresidential sector contracted.

This quarter, the results point to a deterioration in the fortunes of residential contractors and a deepening in the woes of nonresidential building activity.

Overall, after posting mild growth last quarter, output in the total building sector likely contracted.

In contrast, the continued activity at the start of the building pipeline, especially of architects, is seen as cause for optimism. However, whether this translates into higher building activity in subsequent quarters depends on what happens on the broader economic and political front.

“Projects may be passed, but economic and political uncertainty may cause firms and individuals to hold back on investing,” Loos said.