HARD DATA UK Construction equipment sales slowing down in 2023

The CEA’s Market Analyst, Paul Lyons, provides his insight into what is happening in and around the construction equipment market...

After showing a strong start to the year, retail sales of construction and earthmoving equipment have begun to slow down in recent months. In the first seven months of the year to July, sales are 3% ahead of 2022 levels during the same period and have reached 22,500 units. After growing by over 11% in Q1, sales have fallen behind 2022 levels in both May and July, and the anticipated slowdown in sales this year has begun.

As reported earlier in the year, equipment sales in the early months were still benefitting from the “catch up” following supply chain constraints in 2022 which extended lead times for delivery of machines. Sales in recent months are now more exposed to the impact of lower levels of construction activity which are reported on below. However, it should be remembered that sales are still at “record” high levels and remain ahead of 2022, which was the best year for equipment sales since the financial crash in 2008. All equipment sales statistics are sourced from the construction equipment data exchange managed by Systematics International.

The pattern of sales for the major equipment types has shown a mix of performances in the first seven months of the year. Compared with the first seven months of 2022, the strongest sales have been seen by some of the lower volume products such as Road rollers and Wheeled loaders. In contrast, weaker sales have been experienced by some of the higher volume products. This includes Mini/Midi excavators (up to 10 tonnes), where sales are only 3.5% ahead of 2022 levels, and Crawler excavators where sales have been 3% below 2022 levels in the first seven months of the year.

In their most recent forecast published in April, Off-Highway Research are anticipating that sales of construction equipment will show a modest fall of 4% this year in the UK as the impact of high inflation and reduced activity in the construction market is experienced. It is anticipated that this will be followed by a further 2% decline in sales in 2024. So overall, a modest downturn is anticipated for equipment sales following a strong post-Covid recovery.

Construction equipment sales in the Republic of Ireland are also documented in the statistics exchange managed by Systematics International. Sales this year have been on a weakening trend and recorded a decline of 23% in the most recent update in July, compared with 2022 levels. As a result, this has reduced sales in the first seven months of the year to the same levels as last year, after being ahead of 2022 levels in earlier months.

Construction output slowing down and forecast to decline in 2023

The latest figures from the Office for National Statistics (ONS) demonstrate that the growth in construction output has flattened in the first half of 2023. Output in Q1 showed only 0.4% growth on the last quarter of 2022, and output in Q2 was only 0.3% higher than Q1. This followed growth in output of just under 9% in 2022, and clearly indicates a slowing down in activity. Perhaps more significant are the latest statistics on new orders for construction indicating a declining trend. Total orders in 2022 were relatively flat at 1.4% above the previous year. However, this has been followed by a 15% decline in orders in Q1 and a further 18% reduction in Q2. This is expected to result in falling activity levels and output in the second half of the year.

The UK construction Purchasing Managers Index (PMI) published by IHS Markit is a good indicator of sentiment within the UK construction industry. The latest update for August is shown in the chart below. This indicates that the index has remained positive in recent months, but just above the 50.0 “no change” level. August was at 50.8, following an Index of 51.7 in July, which suggests that activity levels within the sector are not declining yet. At this stage, sentiment is remaining resilient, against a background where lower levels of activity are expected in the second half of the year. The latest survey continues to show divergent trends across the three main sectors within the industry. Commercial and Civil Engineering work remain robust and are keeping the index positive overall. In contrast, Housing returned an index of only 40.7 in the August survey and has continued to show declining levels of work since the early months of the year.

The Construction Products Association (CPA) published their Summer forecast for the UK construction market in July. This anticipates a 7% fall in construction output in 2023 and continues the trend of forecasting lower activity levels compared with earlier forecasts. The Spring forecast expected a decline of 6.4% and the Winter forecast was for a fall of 4.7% in output this year. The latest forecast identifies reduced housebuilding activity and lower levels of repair and maintenance in the housebuilding sector as the drivers of the decline. This reflects the impact on households of reduced wage levels and higher mortgage rates this year, resulting in lower demand in the housing sector. Alongside this, the Infrastructure sector is still forecast to show growth in 2023, but at lower levels than previously expected due to the Government announcing delays to road and rail projects. The CPA forecast for 2024 is for construction output to stabilise and show modest growth of only 0.7%. This also reflects a downgrading of activity levels, with the Spring forecast anticipating growth of 1.1% in 2024. https://www.constructionproducts.org.uk/