Activity and new orders both fall at weaker rates at end of 2012

The Irish construction sector remained firmly in contraction in December, although there were signs that the decline eased as activity, new orders and employment all fell at weaker rates. That said, purchasing activity and the use of sub-contractors both decreased sharply. Improved sentiment was recorded, with panellists expecting improving economic conditions and a stabilisation in the market over the coming year. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – posted 43.0 in December, up from 42.6 in the previous month. The reading signalled a further steep reduction in activity, although the rate of decline eased slightly to the weakest since May 2012.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:

“The Irish construction sector ended 2012 on a weak note according to the latest reading of the Ulster Bank Construction PMI. The December reading of the PMI points to ongoing and broad-based declines in construction, as activity continues to slide across the three main sub sectors – residential, commercial and civil engineering.

“Looking back over 2012, it is clear that the construction industry continued to face an extremely challenging environment, with last year marking the sixth year in a row of contraction (the construction PMI has averaged below the breakeven threshold of 50 each year since 2007). One disappointing aspect of the sector’s performance in 2012 was that the hoped-for stabilisation failed to materialise, and the industry continues to be dogged by recessionary conditions, including persisting falls in new work orders and employment levels. There is some level of optimism within the industry that activity levels may start to show improvement as Irish construction firms look 12 months ahead. Indeed, confidence rose to its highest level in five months in December. However, last month’s survey shows that new incoming business levels continue to decline, so it does not appear that any such improvement is likely to happen in the early part of 2013 at least.”

Slower reduction in housing activity

All three monitored sectors posted weaker falls in activity than in the month before. The fastest reduction was for activity on civil engineering projects where the decline was substantial. The residential sector remained the best-performing, with the latest drop in activity the weakest since last January.

New orders decline, but at weaker pace

Those respondents that recorded a reduction in activity in December mainly linked this to the completion of projects, and insufficient new orders to compensate. New business decreased for the twelfth month running. The rate of contraction was marked, but the slowest since June 2012.

Further fall in employment

In line with deteriorating new order levels, constructors lowered both their employment and input buying. The rate of job cuts slowed from November, but remained sharp. Meanwhile, purchasing activity decreased at a steep, and accelerated pace. Input buying has declined in each month since September 2010.

Delivery times lengthen again

Despite a further strong fall in purchasing activity, suppliers’ delivery times lengthened again in December. The latest deterioration was solid, and extended the current sequence of longer lead times to a year-and-a-half. Low stock levels and requests for up front payments reportedly contributed to delivery delays.

A fifth successive increase in input costs was recorded in December, although the rate of inflation slowed and was weaker than the series average. Where input prices rose, this was mainly linked to higher costs for oil-based products.

Strongest optimism in five months

Business sentiment improved to the strongest in five months during December, with firms predicting that improvements in general economic conditions and a more stable market would lead to higher activity in a year’s time.