Rising FNB/BER building confidence index in the fourth quarter of 2010

Cees Bruggemans, Chief Economist FNB has some interesting observations on the FNB/BER building confidence index for 4Q 2010. Rising confidence can be attributed to a recovery in the sectors at the beginning of the building industry pipeline, namely planning and renovations. Architects and quantity surveyors show a marked increase in building confidence. 

The FNB/BER building confidence index increased from 29 during the 3Q 2010 to 38 during the 4Q 2010. The index could vary between zero (indicating an extreme lack of confidence) and 100 (indicating extreme confidence). It reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors, namely architects, quantity surveyors, building contractors, building sub-contractors, manufacturers of building material (cement, bricks and glass) and retailers of building material and hardware.

The confidence of architects increased from 34 in the third quarter to 48 in the fourth quarter and that of quantity surveyors from 24 to 47. The recovery in confidence is supported by a noticeable improvement in the number of contracts awarded. It usually takes at least a further 12 to 18 months before the actual building activity starts after the plans have been drawn up. This means that building activity is only likely to start recovering more pronouncedly from later in 2011 onwards.

The confidence of retailers of building material and hardware rose from 39 to 53 on the back of significantly stronger sales. A big part of this increased activity is not reflected in other closely watched indicators as, in many cases, building plans do not have to be submitted or bank loans taken out.

In conclusion: The rise in the FNB/BER building confidence index is encouraging as it provides the first indication that building activity could begin to recover later in 2011. The recovery in the building sector usually starts on the residential side, followed by the non-residential side about a year later. 

Should the building sector start to recover from later in 2011 onwards, it will have lagged the overall economic recovery by about the same length in time as in the previous cycle. In the last recovery, the economy began picking up in 1999, but the building sector only followed in 2002.

For the full story follow this link to the Rising FNB/BER building confidence index in 4Q2010 article on the FNB site. 

Source: FNB Economics Website