FNB/BER building confidence surprised to the upside in the fourth quarter 2010, led by a recovery in the confidence of the sectors at the beginning of the pipeline, namely architecture and renovation.

FNB/BER analysts say the data signals early stirrings in parts of the building industry, with a possible broader recovery in building activity from later in 2011 onwards.

The overall confidence index increased from 29 during the third quarter of 2010 to 38 in the fourth quarter, the highest in 2 years.

The confidence of architects increased from 34 in the third quarter 2010 to 48 in the fourth quarter while quantity surveyors leapt from 24 to 47.

The recovery in confidence is supported by a noticeable improvement in the number of contracts awarded, the data indicates.

It usually takes at least a further 12 to 18 months before the actual building activity starts after the plans have been drawn up.

This means that building activity is only likely to start recovering more pronouncedly from later in 2011 onwards.

The confidence of retailers of building material and hardware rose as well from 39 to 53 on the back of significantly stronger sales, boosted by the confidence of high-income consumers who stimulated additions and renovations, says FNB Chief Economist Cees Bruggemans.

Meanwhile, after surging from 5 in the second quarter 2010 to 18 in the third quarter 2010, the business confidence of manufacturers of building materials, cement, bricks and glass, increased further to 27 during the fourth quarter 2010.

Although confidence is on the increase, conditions still remained pretty dismal.

During the fourth quarter, manufacturers reduced production further because of rising stocks and falling sales.

Manufactures were forced to discount prices to reduce unwanted stocks.

Given high cost increases, the cut in prices hammered profits further in the short run, Bruggemans said.

"As we predicted in the third quarter, both residential and non residential contractors were too optimistic about the recovery and were therefore disappointed in the actual performance in the fourth quarter," the authors indicated.

"The confidence of residential building contractors reverted back to 20 from 25 previously, as activity contracted at almost the same high rate compared to the third quarter.

The confidence of non-residential building contractors declined to 18, from 26 previously, as activity fell at an even faster pace."

The confidence of building sub-contractors remained unchanged at a low Level, 34 compared to 33 previously. Activity receded further, as barely any new work came through from contractors.

The authors concluded that the rise in the FNB/BER building confidence index is encouraging as it provides the first indication that building activity could begin to recover later in 2011.

The recovery in the building sector usually starts on the residential side, followed by the non-residential side about a year later.

Source: I-Net Bridge