May activity and new orders continue to rise in Irish construction sector

Activity and new orders continued to rise sharply in the Irish construction sector during May, despite further signs of a slowdown in growth. Meanwhile, the rate of job creation ticked up slightly over the month. Cost inflation gathered further momentum amid reports of higher costs for fuel and raw materials.

The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – posted 55.9 in May, down slightly from 56.4 in April but still signalling a marked monthly increase in total construction activity. Activity has now risen in each of the past 33 months, although the rate of expansion eased to the slowest since November last year. Panellists mentioned higher new orders and work on housing projects as having supported growth of activity.

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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 signalled ongoing growth of construction activity in Ireland during May, with the headline index remaining well above the 50.0 no-change mark at 55.9. Although the rate of expansion eased slightly, it was still marked and above the pre-downturn average. A slowdown from the record rate of expansion seen in February was probably inevitable, but it would be reassuring to see some stabilisation in the growth rate in coming months.

“Looking beyond the headline figure, weaker expansions were also seen with regards to housing activity and new orders, while business confidence dipped. On the other hand, there were positive signs from a faster rise in commercial activity, while construction firms were in a position to up their rate of job creation slightly. To sum up, the overall picture is one of solid improvements, albeit with less spectacular rates of growth than were seen in the first quarter of the year.”

Fastest expansion recorded in commercial sector

Housing activity continued to rise sharply in May, albeit at a slightly slower pace than in the previous month. The fastest increase of the three monitored categories was on commercial projects, where the rate of expansion accelerated. Civil engineering activity rose only slightly over the month, with the latest increase the slowest in the current nine-month sequence of growth.

Weaker growth of new orders

New business increased for the thirty-fifth month running in May. The rate of expansion eased for the third successive month to the slowest since March 2015, but was still sharp amid reports that projects previously on hold had been progressed.

Marked increase in employment

Contrasting with slower rises in activity and new orders, the rate of job creation quickened slightly in May as firms responded to higher new orders by taking on extra staff.

While construction firms raised employment at their units, they reduced their usage of sub-contractors for the second month in a row. That said, the rate of contraction was only fractional. Meanwhile, the availability of sub-contractors continued to fall sharply.

In line with the trends seen for activity and new business, the rate of growth in purchasing activity eased in May and was the weakest in 2016 so far. Nonetheless, the rate of expansion remained sharp.

The rate of input cost inflation accelerated again and was faster than the series average. Panellists reported higher prices for raw materials including metals, as well as increased fuel costs. Meanwhile, the rates charged by sub-contractors also rose at a faster pace.

Business confidence dropped sharply in the latest survey period and was the lowest in more than two-and-a-half years. That said, sentiment remained strongly positive, with over half of all respondents forecasting growth of activity over the coming year.