Sharpest decline in activity of 2013 so far

The end of the first quarter of 2013 saw an acceleration in the rate of decline in the Irish construction sector, with activity, new orders and employment all decreasing at faster rates. Firms cut their purchasing activity at a substantial pace, but reduced stock holdings at suppliers led to the strongest lengthening of lead times in six-and-a-half years. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – fell to 43.1 in March, from 45.3 in February.

The reading signalled a marked reduction in construction activity, and the strongest seen so far in 2013. The latest decrease extended the current sequence of decline to 70 months. Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that: “Activity in the construction sector continued to contract last month, according to the latest reading of the Ulster Bank Construction PMI. The pace of decline quickened to the fastest so far this year in March as conditions deteriorated across the Housing, Commercial and Civil Engineering sub-sectors. “Previously encouraging signs on the trend in the New Orders index gave way to renewed weakness last month as survey respondents cited a lack of available projects and strong competition for tenders as key headwinds. In turn, diminished new business opportunities continue to exert downward pressure on staffing levels as the employment index fell in March following three months in a row over which the pace of decline eased.” Activity declines at faster rates across all three sectors All three monitored sectors posted sharper reductions in activity during March.

The steepest decline was again seen for civil engineering activity, where the rate of contraction quickened to the fastest in three months. Housing activity fell markedly, but continued to post the weakest reduction in activity of the three sectors. Sharper reduction in new orders Anecdotal evidence suggested that falling new orders had contributed to the drop in activity. In turn, a lack of available projects and strong competitive pressures led new business to decrease. New orders fell markedly, and at the sharpest pace in three months. Employment continues to fall Construction firms responded to lower workloads by reducing employment for the seventy-first successive month. Moreover, the rate of job cuts quickened to the sharpest in 2013 so far. Constructors also lowered their purchasing activity at a faster pace in March.

The rate of decline was considerable, and the steepest since March 2011. Lead times lengthen markedly Despite a sharp reduction in demand for inputs, a further lengthening of lead times was recorded. Panellists largely attributed this to low stock levels at suppliers. Furthermore, the rate at which suppliers’ delivery times lengthened was the strongest in six-and-a-half years. A further marked increase in input costs was recorded during March, with the rate of inflation little-changed from that seen in February. Sentiment dips to lowest in three months Business sentiment dipped in line with sharper declines in new orders and activity, and was the lowest in three months. That said, firms still predicted activity to increase over the next 12 months, reflecting both the weakness of current activity levels and new business development.