Slowest reduction in Irish construction activity since May 2012

The Irish construction sector continued to contract at the start of 2013, although rates of decline in activity, new orders and employment all eased during the month and business sentiment improved. Meanwhile, the rate of input cost inflation slowed. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – posted 45.8 in January, signalling a further marked reduction in construction activity. However, the reading was higher than the 43.0 seen in December, and pointed to the weakest decline in activity since May 2012.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:“The first reading of 2013 of the Ulster Bank Construction PMI indicates that the rate of deterioration in business conditions in the sector has eased slightly so far this year. While it remains the case that activity levels continue to decline, the pace of decline eased to its slowest since May 2012. Less-negative trends were evident in the housing sector – where the PMI rose to its highest level in a year – and in commercial construction. However, civil engineering remains the weakest sub-sector, with the January survey picking up an acceleration in the rate of contraction in activity. A weak start to the year for Exchequer capital spending is probably a contributory factor here.

“Similar to the trends in the overall PMI, the new orders index has crept up to levels last seen in the second quarter of last year. However, the index of new business flows remains below the key breakeven level of 50 so the less-negative trends here are not yet consistent with any near-term stabilisation for the sector. And it is the dearth of new work which remains a key obstacle to any improvement in employment, though the pace of decline in staffing levels did ease to its slowest pace since last February.”

Civil engineering activity continues to fall sharply

Slower reductions in activity were seen on both residential and commercial projects during January. The weakest fall was in housing activity, which decreased at the slowest pace in a year. In contrast, the rate of contraction in civil engineering activity accelerated, and was much faster than that seen for overall construction activity.

Slower reduction in new orders

Those respondents noting a drop in activity linked this to lower new business. That said, consistent with the trend for activity, new business decreased at a slower pace at the start of 2013. The rate of decline eased for the second month running, but was still solid. According to respondents, clients remained reluctant to commit to new projects.

Job shedding continues, albeit at weaker pace

Lower workloads led constructors to reduce their employment again in January. Staffing levels have fallen in each month since May 2007. However, the rate of job cuts slowed and was the weakest in 11 months.

Cost inflation slows

Although input prices rose again in January, the rate of cost inflation slowed and was much weaker than the series average. Higher energy and fuel costs were signalled by respondents.

Purchasing activity decreased at a marked pace during January, with panellists indicating that this reflected lower new business. That said, the rate of decline was the slowest since last September. In spite of lower demand for inputs, suppliers’ delivery times lengthened during the month. The latest deterioration was solid, and little-changed from those seen in recent months. Panellists reported that low stock levels at suppliers had been behind longer lead times.

Business sentiment strengthens

Optimism at Irish construction firms improved at the start of 2013, and was the strongest since last June. Positive sentiment was linked by respondents to predictions of improving economic conditions.