Growth of activity quickens for third month running according to the Ulster Bank PMI

The rate of activity growth in the Irish construction sector has gathered even more speed again in May, returning to the pace seen in the final quarter of 2014.

Rising activity was supported by strong growth of new orders with firms increasing their employment and purchasing activity accordingly. There was a further sharp rise in input prices as panellists highlighted the impact of the weak euro. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – increased for the third month running in May, posting 63.3 from 57.2 in April. The reading signalled the sharpest increase in activity since November last year, with the current sequence of monthly expansion now extended to 21 months.

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

“The latest Ulster Bank Construction PMI report reveals a further improvement in business activity in May. Following a noticeable pick-up in April, activity rose sharply once again last month with the headline PMI index accelerating from 57.2 to 63.3 – its highest level since November of last year. This extends the construction sector’s run of continuous expansion to 21 months.

“The detail behind the headline paints a similarly optimistic picture. For the second successive month a marked acceleration in activity was recorded in two out of the three major sub-sectors, namely Housing and Commercial, while Civil Engineering activity also edged higher, albeit a much less rapid pace. Respondents also reported a further pick-up in new orders which rose to 60.4 – its highest level so far in 2015.”

“This resulted in firms adding to staffing levels in response to greater client demand with one in four panellists increasing their headcount last month. Moreover, sentiment about the sector’s prospects over the coming twelve months also rose in May and remains at very elevated levels. Irish construction firms continue to envisage further activity gains on the back of a strengthening in the broader economy.”

Substantial increase in commercial activity

For the second month running, all three of the monitored sub-sectors posted higher activity. The sharpest increase continued to be registered on commercial projects, with the rate of growth the fastest in six months. In fact, all three sectors saw their rates of expansion quicken, but civil engineering activity continued to rise only modestly overall.

Fastest rise in new orders in year-to-date

The increase in activity was matched by a sharp expansion in new business at construction firms in May. New orders rose for the twenty-third month in a row, with the latest increase the fastest in 2015 so far. Some respondents indicated that more tenders were available to bid for.

Job creation picks up

Higher workloads led companies to increase both their staffing levels and purchasing activity during May. Employment increased at a considerable pace over the month, with the rate of job creation at a four-month high.

Meanwhile, the rise in purchasing activity was the fifteenth in as many months. The rate of growth in input buying has quickened in each of the past three months, with the latest increase the fastest since last December.

May data signalled a sharp expansion in sub-contractor usage among Irish construction firms. This led to another marked deterioration in the availability of sub-contractors, the strongest since last November. As demand for sub-contractors rose and their supply declined, the rates they charged increased sharply despite a perceived worsening in their quality.

Suppliers’ delivery times lengthened in May amid reports of a lack of stocks at vendors. Meanwhile, the rate of input cost inflation quickened from the previous month. A number of respondents indicated that the recent weakness of the euro had led the cost of imported items to increase.

Construction firms were generally confident that activity will increase over the coming year, linked to positivity around the construction sector environment. Sentiment in May improved from the previous month and was among the strongest seen in the survey’s history.