Ulster Bank Construction PMI Report (ROI) – Construction activity grows strongly at end of 2014

The Irish construction sector maintained its recent run of strong growth in activity at the end of 2014. New orders also continued to expand sharply, albeit at a weaker pace, while companies took on extra staff at a rapid rate.

The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – remained well above the 50.0 no-change mark in December, posting 63.1, down slightly from 63.5 in November. This signalled a further strong monthly increase in activity, albeit the slowest in three months. The average reading for 2014 as a whole was the highest since the series began in mid-2000.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:
“The results of December’s Ulster Bank Construction PMI survey confirm that activity trends in Irish construction remained robust as 2014 drew to a close. The headline PMI reading of 63.1 indicates that activity once again rose strongly last month, albeit at a slightly slower pace than in November. Respondents continue to report a broad-based recovery across the sector. While the indices for housing and commercial activity declined in December, they both remained at very elevated levels, and civil engineering activity increased at its fastest pace in eight years.

“Although the new orders index fell to a four-month low, it still remains at very punchy levels and continues to indicate solid expansion in new business activity. New orders have now increased for eighteen consecutive months and respondents expect this trend will likely continue, as sentiment remained very bullish in December with approximately two thirds of respondents forecasting higher activity in twelve months’ time. The sustained expansion in orders and activity, along with high levels of optimism in relation to future business activity, meant firms continued to report increased staffing levels last month. In fact, the employment index remained above the no change 50 level for the sixteenth consecutive month in December.

“Overall, 2014 marked an important year for the Irish construction sector, with the PMI results through the year pointing to the establishment of a solid, broadly-based recovery.  While this recovery needs to be seen in the context of the huge downturn which hit the sector over 2006-13, the encouraging trends in place at the end of the year indicate that the sector will likely enjoy further expansion in 2015.”

Housing activity increases sharply
Where activity increased, this was linked to rising new business, with the housing sector mentioned as a source of growth by some companies. Residential activity continued to rise sharply despite the pace of expansion slowing for the third month running. The fastest rise of the three categories of construction was on commercial activity. Meanwhile, civil engineering activity increased for the third month running, and at the steepest pace since October 2006.

Growth of new business eases
A marked slowdown in the rate of expansion of new orders was recorded in December, but new business still rose sharply during the month amid stronger client demand and improving market conditions. New orders have now increased on a monthly basis throughout the past year-and-a-half.

Marked rise in employment
Higher new work and the prospect of further improvements in 2015 led construction firms in Ireland to raise their staffing levels again in December. The sixteenth successive monthly increase in employment was sharp, and broadly in line with that seen in the previous month.
A substantial rise in sub-contractor usage was recorded in December, with the rate of expansion the strongest since February 2006. The quality of work carried out by sub-contractors deteriorated for the third month running, but their rates increased at a considerable pace that was the fastest in the survey’s history.
Companies reacted to higher new orders by raising their purchasing activity again in December, and at a sharp pace. This increase in demand for inputs created additional workloads for suppliers, in turn resulting in a lengthening of delivery times. That said, the latest deterioration in vendor performance was the weakest since November 2013. Meanwhile, input costs continued to rise sharply.
Construction firms generally expect economic conditions in Ireland to improve further during 2015, resulting in optimism around the prospects for activity over the next 12 months. Although below November’s record, sentiment remained among the strongest registered in the series to date.

Press information

For further information please contact Simon Barry, Chief Economist Republic of Ireland, on 00 353 1 643 1553 or 00 353 86 3410142 or email simon.barry@ulsterbankcm.com