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While overall business activity picked up in March, it belies the underlying mood in the sector as input cost inflation posts a record rise on the month. The pick up is helped by an improved mood in housing activity, posting its shallowest decline so far this year. In turn, that makes commercial activity the weakest-performing segment in March.That being said, the latest survey showed a sharp deterioration
in constructors’ expectations for activity over the coming
year. And that comes after having hit a six-year high in February. Of note, panellists reported concerns about
demand and steep cost increases. That isn’t a surprise considering the latest Middle East developments.On the latter, the rate of input price inflation faced by German construction
companies rose sharply in March, recording its most marked
one-month jump in the series history. This took it to its highest
level since October 2022 and well above its long-run average. Trouble, trouble.HCOB notes that:”Whilst there were signs of improvement on the activity
front in March, with housing work showing a much
slower rate of decline and civil engineering enjoying
stronger growth, several of the survey’s other indicators
flashed warning signals about the sector’s prospects in
the coming months. For a start, inflows of new orders
continued falling at an accelerating rate, with existing
headwinds to demand from economic uncertainty and
already-high price levels being exacerbated by the
outbreak of war in the Middle East.
“The construction sector has followed manufacturing
in seeing a record month-on-month rise in its input
prices index, underscoring the immediate spike in cost
pressures that’s rippled through the economy from the
Middle East war.
“The dual concerns over weaker demand and sharply
rising prices have hit business confidence and put paid
to the green shoots of optimism seen at the start of the
year.”
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
So, business activity is up, but don’t let that fool you—input cost inflation is hitting record highs. This mixed signal is crucial for traders, especially those in sectors sensitive to cost pressures like construction and manufacturing. The uptick in housing activity might seem like a silver lining, but if input costs keep rising, profit margins could take a hit, leading to potential sell-offs in related stocks. Watch for how companies report their earnings in the coming weeks; if they cite rising costs without corresponding price increases, it could trigger bearish sentiment. On the flip side, if housing continues to show resilience, it might support commodities like lumber or even influence interest rates. Keep an eye on key levels in the housing market and inflation indicators; any significant shifts could impact broader market sentiment and trading strategies. The next few weeks will be pivotal, so monitor the economic reports closely for any signs of a shift in this delicate balance.
📮 Takeaway
Watch for earnings reports in the coming weeks; rising input costs could trigger sell-offs if companies can’t maintain margins.
