What's going on?
Fresh data released on Tuesday showed that activity in the UK’s construction sector crumbled in March for the second month in a row – the first back-to-back decline in three years.
What does this mean?
Construction’s a small part of the UK economy, but its sensitivity to uncertainty can help investors assess the country’s long-term economic health. And a lack of any resolution to the Brexit saga has builders worried, with many companies afraid of being left holding the financial baby. Some pressured customers for prompter payment last month, and others avoided taking on work altogether – especially where profit margins were low, and at risk of falling further with any Brexit-induced drops in the pound’s value.
Still, there was a bright spot in the data: UK residential construction activity rose in March, beginning to mirror American homebuilders: their stocks rose 17% last quarter, partly thanks to sales expectations rising in March.
Why should I care?
For markets: A wait-and-see approach on both sides of the pond.
The UK’s homebuilding industry is still on shaky ground, with would-be buyers holding off due to Brexit. In the US, however, the stars and stripes seem to be aligning. Mortgage rates have fallen heading into the peak homebuying season, encouraging buyers. Yet slower-than-expected building of new homes in February could presage a change: with millennials overtaking baby boomers this year as America’s largest generation, their preference for renting over buying could dampen demand.
The bigger picture: A home’s price is where the heart is.
While they’ve risen in the rest of the UK, house prices in England are 0.7% lower than they were a year ago – their first fall since 2012. London, the nation’s beating heart, saw its biggest drop in property values in a decade. Rising house prices often help people feel better off – which could explain why UK consumer confidence remains decidedly wobbly. In the US, prices are still rising (albeit more slowly than before), helping consumers there feel more self-assured.