The Irish construction sector moved closer to stabilisation in August amid further growth of new business. Although employment and purchasing activity continued to fall, rates of decline eased in each case and business optimism improved to the strongest since January 2007. Meanwhile, input prices decreased for the first time in just over a year.
The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – rose for the fourth consecutive month in August, posting 49.7 from 47.5 in July. The reading signalled a marginal fall in construction activity that was the slowest in 20 months.
Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:
“The August results of the Ulster Bank Construction PMI survey offered further encouragement on trends in the Irish construction sector, which continues to show signs of stabilising. Most notably, the New Orders index posted another above-50 reading last month, thus pointing to a second consecutive monthly rise in new business levels. And the improvements in orders have now begun to foster increases in activity levels in both the Housing and Commercial sub-sectors – the first time in almost six years that two areas of the construction sector have experienced rising activity in the same month.
“The overall PMI index also increased last month, though remained just slightly below 50, reflecting ongoing activity declines reported by firms operating in Civil Engineering. But at 49.7, the headline PMI index is itself within touching distance of the stabilisation point of 50 – a milestone which looks set to be reached in the coming months, given the improvement in new business patterns. Overall, the improved trends in several areas of the Construction PMI chime with other indicators on the sector, including house completions and employment, which together suggest that the Irish construction sector is finally beginning to emerge from a six-year slump in activity.”
Growth in housing and commercial sectors
Growth in activity was recorded in two of the three monitored sectors in August – housing and commercial. A second successive rise in activity on residential projects was the first back-to-back expansion since late-2006, while commercial activity rose for the first time in 19 months. Civil engineering remained the worst-performing sector, with activity continuing to fall sharply in August.
Further rise in new business
The slowdown in the rate of decline in overall activity was linked by respondents to growth of new orders. New business increased for the second consecutive month, and at a solid pace that was the fastest since March 2007. A number of firms reported the signing of new contracts, with some mentioning new housing projects.
Employment continues to fall
Despite growth of new orders, construction firms in Ireland continued to lower their staffing levels during August. That said, the rate of job cuts slowed to the weakest since February. Input buying also fell at a slower pace, with the latest decline the least marked in almost a year-and-a-half as some firms raised purchasing in response to higher new orders.
Input prices decrease
Input costs at construction companies decreased for the first time in 13 months in August. Prior to this decline the rate of inflation had eased in five consecutive months.
Meanwhile, suppliers’ delivery times lengthened again amid reports from panellists of a lack of stock at vendors. Lead times have now lengthened in 26 successive months.
Strongest optimism since January 2007
Sentiment among construction firms regarding the 12-month outlook for activity strengthened in August and was the highest since January 2007. Rising new orders was the main factor leading to optimism, while panellists also mentioned improving economic conditions.