FNB's building confidence index, which measures the business confidence of all the major role players and suppliers involved in the building industry, declined to 66 points in 2008's first quarter, compared with 86 points in the last quarter of 2007.

FNB chief economist Cees Bruggemans said in statement that the deterioration of the index was the result of the business confidence of all subcategories comprising the index declining during the period.

The confidence of building material retailers, manufacturers, wholesalers and contractors declined the most.

The business confidence of residential building contractors dropped from 76 points in the last quarter of 2007 to 60 points in the first quarter of the year, and Bruggemans stated that the growth in building activity in this sector disappointed.

The survey said that some 21% of respondents had expected a weakening in the first quarter of 2008, but that the latest survey revealed that in fact a net 39% experienced a decline in workloads.

"The tightening in demand conditions and increasing tendering competition currently being experienced in the residential sector continues to exert downward pressure on profit margins. It was, therefore, not surprising that a net 46% of respondents to the survey indicated that the growth in profitability of companies was below that of the same quarter a year ago," Bruggemans said.

With the demand for residential buildings waning, the reduction in workloads forced respondents to further reduce the number of people employed. Nevertheless, the availability of skilled labour remained a noteworthy constraint, hampering the building operations of respondents.

Respondents also indicated that they were expecting business conditions in the residential sector of the industry to remain "unfavourable".

Meanwhile, business confidence of nonresidential building contractors "rather unexpectedly" also declined relatively sharply, Bruggemans said.

The index fell to 78 points in the first quarter, compared with 92 points in the fourth quarter of 2007.

Respondents to the survey reported that business conditions turned out well below expectations.

At the time of the previous survey, about 2% of respondents were expecting an improvement in the growth in building activity, but first quarter results revealed that 20% of nonresidential contractor participants experienced a decline in activity.

"In view of the weaker demand conditions experienced, competition in tendering edged up sharply. As a direct result, margins came under pressure and the growth in profitability of nonresidential contractor respondents deteriorated notably. This trend is expected to continue in the coming quarter," Bruggeman said.

Looking ahead, he said that the survey's participants did not expect a reversal in current business conditions and they anticipated the profitability of companies to deteriorate further.

The index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University. The BER business survey in the building industry was conducted between February 4 and March 3.