Construction Industry: Sharp Improvement in Business Situation

According to the results of the ifo Business Survey, the business climate indicator for the construction industry reached a new high in July. The strong improvement in the business climate (+8 balance points) is largely attributable to the considerably more positive assessment of the current situation (+ 15 balance points). By contrast, the survey value for the business expectations component rose only to a limited extent. Equipment utilisation climbed to 80.1%, significantly exceeding the previous year’s figure (July 2017: 77.9%). Of the respondents, 37% reported constraints to construction activity. In most cases, this was a labour shortage (16%), although here there was some weakening compared to the previous month. In the meantime, just as many construction companies complained of material shortages as about a lack of orders (6% each). The range of order reserves fell by 0.1 months to 3.9 months. The company responses indicate that prices might have been raised much more frequently than before. Already in June, this survey value was close to its previous record level, which has now been clearly exceeded. With regard to pricing leeway in the coming three months, the companies were even more optimistic than in the previous month. Expectations of employment expansion reached the second highest value ever measured in July. The special question for July showed that 84% of the surveyed construction companies occasionally use loaned equipment to carry out equipment-intensive work, or rely on specialist firms to do so as subcontractors. On average for 2017, the share of rental equipment in existing equipment capacity amounted to 17%.