Construction PMI: Signs of cautious optimism for construction industry as December PMI increases

According to the latest PMI data by S&P and CIPS, the headline construction PMI for December increased to 46.8, up from 45.5 in November. This latest rise was driven by a significant increase in civil engineering to 47, coupled with a slight uptick in new orders to 47.9. In addition, housing activity rose to 41.1, continuing the four-month upward trend. The availability of subcontractors also decreased for the third consecutive month to 56.2, suggesting there are reasons for cautious optimism in 2024. 

After a year of disruption to infrastructure projects and slowdown in the housing market, the latest data reflects signs of stabilisation for the construction industry, especially with recent falls in mortgage rates bringing further welcome news. These signs of cautious optimism also tally with wider market sentiment as demonstrated by RSM’s latest edition of the Middle Market Business Index. However, with the headline PMI still below 50, industry activity is still contracting, just at a slower rate, which could be dampened by the adverse weather conditions so far in January 2024. 

Thomas Pugh, economist at RSM UK, said: ‘The tick up in the construction PMI in December was another factor suggesting that the economy improved a little at the end of last year following a dismal October. However, the index is still well below the 50 level which theoretically marks the difference between expansion and contraction, suggesting that the industry was struggling to grow in Q4. 

‘Indeed, there is a significant chance that the economy slipped into recession in the second half of last year. And it will almost certainly remain weak throughout the first half of 2024 as high interest rates continue to take their toll. 

‘But, looking ahead, there are reasons to be optimistic in 2024. Now that attention has firmly turned towards when interest rates will start to be cut, mortgage rates have fallen sharply over the last two weeks. That will help to stabilise house prices, which are now probably at or near their nadir. A gradual recovery in the housing market will help to stimulate housing construction. In addition, an economic recovery in the second half of this year should support an improvement in commercial activity.’