The First National Bank (FNB)/Bureau for Economic Research Building Confidence Index reached its highest level in a year, at 40 points, in the fourth quarter. 

This was two points higher than the 38 points recorded in the third quarter, bolstered by confidence being higher in all but two of the index subsectors, namely retailers and manufacturers of building materials.

However, even though confidence improved, the current level of the index indicates that 60% of respondents are dissatisfied with prevailing business conditions.

The confidence of main contractors increased for the second consecutive quarter, to 48 index points, from 44 in the third. Further, the confidence of both nonresidential and residential main contractors rose in the fourth quarter.

“Although both segments registered higher confidence, the underlying performance of the residential market remains noticeably better than that of the nonresidential market,” said FNB property economist John Loos.

The nonresidential sector continues to struggle with weak growth in building activity and deteriorating profitability. In contrast, residential main contractors reported an improvement in building activity and profitability.

Loos added that the improvement in residential building activity was welcomed, particularly given how poorly this segment has performed for much of this year relative to 2015.

Adding to the optimism is a further uptick in activity at the start of the building pipeline. The confidence of architects and quantity surveyors increased by six and eight index points to 49 and 58 respectively.

The rise in quantity surveyor confidence was underpinned by a solid improvement in activity. The activity of architects, however, was largely unchanged from last quarter.

“The continued improvement in especially quantity surveyor activity is encouraging, particularly as an indicator of building activity to come,” added Loos.

While some subsectors fared well this quarter, others struggled, marring the overall outlook for the building sector.

Confidence of building material manufacturers shed 11 index points to register a level of ten – the lowest level since the second quarter of 2014. Profitability came under pressure during the quarter with purchase prices continuing to rise while manufacturers dramatically cut their own domestic selling prices.

“On the upside, the lower domestic selling prices helped boost domestic sales,” said Loos. Hardware retailer confidence slipped by two index points to 29 in the fourth quarter. This marks the lowest confidence since the third quarter of 2012.

“Confidence declined despite higher sales as a slow rise in selling prices weighed on profitability”, remarked Loos.

Subcontractor confidence gained three points to register an index value of 43 in the fourth quarter. Barring the improvement in residential building, quantity surveyor activity and domestic demand for hardware, other encouraging trends emerged this quarter.

Firstly, employment in the sector improved. “Higher employment usually only occurs when a sustained improvement in the sector is anticipated, not merely for one-off spikes in activity,” stated Loos.

Secondly, in addition to the rise in residential activity, the higher domestic sales growth for manufacturers and retailers suggests an improvement in domestic demand, even though it remains weak.

After moving sideways for much of the year, building activity improved somewhat, led by residential main contractors. Also adding to the growth in the sector is the rise in quantity surveyor activity and improved domestic demand for hardware.

However, continued pressure on nonresidential building activity and profitability in certain subsectors prevented the confidence index from improving more meaningfully.

In addition, the outlook remains uncertain. “While these results are encouraging, weakness in the broader macroeconomy, especially the consumer environment, could hamper further improvement in the sector over the short- to medium-term,” Loos stated.