The FNB Building Confidence Index measures the business confidence of all the major role players and suppliers involved in the building industry such as architects, quantity surveyors, contractors, sub-contractors, wholesale and retail merchants and manufacturers of building materials.

The index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University. The BER business survey in the building industry was conducted between 4 August and 1 September 2008.

The index increased from an index value of 50 in 2Q 2008 to 52 in 3Q 2008. The latter level compares with an index value of 85 in the corresponding quarter a year ago.

Retailers' confidence doubles

FNB Chief Economist Cees Bruggemans said that the marginal rise in the index is explained by a more than doubling in the confidence level of retailers of building materials and to a lesser extent by a six index point increase in the confidence of quantity surveyors and a two index point increase in the confidence of residential contractors.

It would appear as if the rise in confidence of retailers is related to the successful discounting and selling of stocks, which increased involuntarily, in the previous quarter. This was probably a once off event and confidence is likely to wane going forward.

In the case of quantity surveyors, 3Q2008 business conditions and activity levels turned out much better than was expected at the time of the previous survey and consequently impacted on their confidence levels.

Business confidence of residential contractors increased marginally from an index value of 32 in 2Q 2008 to 34 in 3Q2008.

However, all other sub-components of the FNB index showed a decline in confidence during 3Q2008.

Insufficient demand for building work

According to Bruggemans building activity in this segment of the industry remains most unfavourable and no less than 87 percent of the respondents to the survey indicated that the insufficient demand for building work was a serious constraint affecting their businesses. Growth in building activity in 3Q2008, although rather weak, was in line with expectations.

The weak demand for residential buildings resulted in an increase in tendering competition for new projects. In order to compete, respondents to the survey had to reduce their profit margins with the result that overall profitability took a knock.

Given the sluggishness of building demand in the residential market, respondents indicated that they further reduced the number of people in their employment, more so than expected at the time of the previous survey.

With respect to the outlook for 4Q2008 Bruggemans indicated that the broad consensus is that business conditions are unlikely to deteriorate further.

John Loos FNB Property Strategist stated that the business confidence of non-residential building contractors declined from an index value of 70 in 2Q2008 to 66 in 3Q2008.

Business conditions turned out below expectations

Business conditions turned out below expectations. Whereas a net 27 percent of respondents anticipated a moderation in the growth in building activity at the time of the previous survey, an analysis of third quarter results revealed that a net 43 percent eventually experienced weaker business conditions compared to the same quarter a year ago. The growth in building activity suffered accordingly.

Loos observed that in line with weaker demand levels, tendering competition intensified. As a result, the growth in the profitability of participants to the survey was adversely affected.

With non-residential building activity showing signs of weakness, survey respondents reported that they had reduced the number of people employed, well above the level expected at the time of the second quarter survey.

Respondents do not expect a major change in business conditions during 4Q2008.