Economic meanderings

Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.

The phrase doing the rounds at the end of last year was “Survive ‘till ‘25” – loads of companies just thinking that, if they can hang on in there through the difficulties of 2024, then it will all pick up.

Has 2024 thus far been as bad as feared? It depends where in the chain you are, and what measures you took early on to mitigate. Some 19 construction companies called in the administrators in July, according to Construction News, but that was down from 31 in June and 24 in May. So, heading in the right direction. Maybe?

Depending where you look, and which set of figures you’re referring to, the outlook is brightening up, or still pretty murky. The CPA downgraded its forecasts slightly in the near-term, expecting output to be down by 2.9% this year,  a downgrade from its 2.2% contraction forecast three months earlier.  Although now that the Bank of England has reduced interest rates by 0.25%, we might start to see a bit more confidence, and some improvement, something that that organisation’s economics director, the estimable Dr Noble Francis hinted at when at the NMBS Conference in June. Indeed, the CPA’s latest State of Trade Survey showed early signs of recovery for the construction product manufacturing sector in the second quarter of 2024 on both the heavy side and light side.

Then of course, we have the S&P Construction Purchasing Managers Index, which is usually more optimistic anyway, whose latest findings are that construction output is at its highest level for over two years, with a much faster increase in new orders, and employment.

Whether all that translates into actual, real business gains and results remains to be seen. Certainly, it’s been a bit grim so far. Brick-maker Ibstock saw weaker demand drive both revenue and pre-tax profits down for the six months to June 30  – by 20% to £178m, and 60% to £12m, respectively. Travis Perkins, too, another company that engaged in some really enthusiastic pruning of costs, has pegged half-year losses back to 4.4%, and although profits did slide by a third to £75m, that’s a bit less painful than the 61% tumble they took for the full year in 2023. Marshalls reported earlier this week that revenue was down 13% for the half-year, yet, thanks to all its cost-cutting, pre-tax profits were actually up.

Travis Perkins’ woes of the past year or so have been featured heavily, not least in this column so it will be interesting to see what the new triumvirate of Finance Director Duncan Cooper, who joined in January and incoming CEO Pete Redfern, Chairman Geoff Drabble, make of it all. The first two have  experience of the wider housebuilding industry – Taylor Wimpey and Crest Nicolson, respectively, and Drabble has experience of a number of relevant boards – Howdens, Ferguson, A-Plant and  Black & Decker.

Redfern and Cooper will know first-hand what a large chunk of Travis Perkins’ customer base want from their merchant suppliers. Whether that’s enough, time will tell. If there’s too much focus on the big fish, then there are plenty of other merchants out there, ready and only too happy to swoop in on the smaller, arguably more lucrative customers.