THE TAKEAWAY: UK PMI for construction disappoints at 49.0 versus stagnant expectations -> A drop in new orders and output drags down sector activity index -> Sterling falls below key level

UK construction sector activity fell back into contraction in August according to Markit’s Purchasing Managers’ Index. The PMI for construction was reported at 49.0, disappointing expectations for a 50.0 index result and coming in lower than July’s 50.9 survey. A PMI below 50.0 indicates contraction in the sector.

The lower PMI was due to a downturn in construction output and new orders. Residential construction saw the biggest reductions in August; although commercial construction activity only fell marginally, it was the first decline in 2.5 years. Employment numbers in the construction sector staggered in August.

A third straight quarter of gross domestic product declines was recently reported in the UK, and the drop in the construction sector is just one symptom of the UK’s economic decline. Markit Senior Economist Tim Moore said, “August data reaffirms that UK construction firms are suffering a prolonged downturn in new work and there is little evidence to suggest an imminent rebound in output levels.”

GBPUSD fell below the key 1.5900 level following the weaker than expected PMI release. Next support for Cable could be provided at 1.5800, while 1.5900 could continue to provide resistance.

GBPUSD 15-minute: September 4, 2012

UK_Construction_Activity_Retrurns_to_Declines_in_August_body_gbpusd.png, UK Construction Activity Returns to Declines in August

“Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.”