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Building confidence lower

Johannesburg - Building confidence for the second quarter of the year was lower as economic recovery remained weak, FNB and the Bureau for Economic Research (BER) said on Tuesday.

After rising from 29 to 34 index points in the first quarter, the FNB/BER building confidence index fell to 27 during the second quarter.

Confidence was lower in all the components making up the composite index, except for architects and sub-contractors.

"Despite the drop in confidence, the underlying data on activity and profitability does not suggest that the recovery has stalled," FNB and the bureau said in a statement.

Rather, it suggested that the pace of the recovery remained very slow.

The index remained higher than it had been for most of last year.

"The current level of the index suggests over 7 out of 10 respondents in different sectors of the building industry rate prevailing business conditions as unsatisfactory."

The FNB/BER building confidence index can 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.

These include architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.

The biggest fall in confidence was registered by building material and hardware retailers (-29 index points), followed by manufacturers (-17), main contractors (-7) and quantity surveyors (-5).

Confidence among architects and sub-contractors rose by 13 and 3 index points respectively.

The business confidence of main contractors shed 7 index points to a value of 24 during 2Q2012.

As was the case last quarter, the biggest change in confidence was recorded among non-residential contractors where confidence fell from a level of 38 index points to 19 during 2Q2012.

The confidence of residential contractors remained largely flat, slipping 2 index points from 28 to 26 during 2Q2012.

The non-residential sector continued to outperform the residential sector, a continuation of the trend seen for much of 2011 and the first quarter of 2012.

"Although the performance of the sector during 2Q2012 was not much changed from that of 1Q2012, it did not improve further as anticipated," said FNB chief economist Cees Bruggemans.

This again highlighted the slow, somewhat hesitant nature of the building recovery, he said.

In addition, increased domestic and global uncertainty may have dampened confidence and contributed to the divergence between confidence and activity.

After rising to 37 from 12 index points during 1Q2012, the confidence of building material manufacturers retreated to 20 index points during 2Q2012.

The domestic market, measured by domestic sales and orders received, remained robust during the second quarter. However, manufacturers faced a relatively steep rise in cost pressure during the quarter, according to the index.

At 11 index points, confidence among building material and hardware retailers was at its lowest level in a year.

This was 29 index points down from the 40 registered during the first quarter. The fall in confidence comes on the back of a significant sales volume drop.

Retailers also experienced margin pressure.

Purchasing prices had increased while selling prices were unchanged during the second quarter.

During the first quarter, architect business confidence declined while that of quantity surveyors increased.

This trend was reversed in the second quarter. Architect confidence rose to 30 index points from 17 during 2Q2012, with overall activity levels slightly better. Conversely, quantity surveyor confidence moved lower from 47 to 42 index points in 2Q2012.

"These two components are a reasonable indicator of the robustness of the non-residential building pipeline," said FNB and the bureau.

"The mixed set of results reinforces the idea of a slow, hesitant recovery."

The mixed overall results (with some areas of the building sector doing better than others) point to continued difficulties within the sector and that the recovery is still in a vulnerable state, the organisations said.

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