Confidence hits one-year high despite decline in activity

The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) remained well below the 50.0 no-change mark in February, despite rising to 27.0 from 21.2 in January, signalling a softer pace of reduction. Respondents indicated that COVID-19 lockdown restrictions had been behind the decline in activity.

Index readings above 50 signal an increase in activity on the previous month and readings below 50 signal a decrease.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that: “The latest results of the Ulster Bank Construction PMI survey point to a further steep contraction in Irish construction activity in February as the headline PMI remained significantly below the 50 no-change level for a second month in a row.  While the pace of decline wasn’t quite as severe last month as in January, the considerable weakness in the February results clearly indicates that the pandemic-related restrictions continued to weigh heavily on activity patterns and staffing levels across the sector.

“The New Orders index also remained firmly in contraction territory in February thus signalling that activity is likely to remain under significant pressure in the near-term amid the ongoing restrictions which will continue to depress activity in March.  However, despite the extent of the current challenges facing the sector, the February results were also notable for a sizeable pick up in confidence about the outlook further ahead.  Sentiment picked up to its highest level in twelve months as almost half of surveyed firms anticipate an expansion in activity over the year ahead, with confidence bolstered by expectations for a release of pent-up demand as headwinds from the pandemic fade.” 

Business confidence at 12-month high

While activity and new orders decreased substantially again, there was growing confidence that the coming year would see an expansion in activity amid the release of pent-up demand once the pandemic comes to an end. In fact, optimism strengthened to the highest since February last year. Around 48% of companies predicted an expansion of activity.

Despite confidence in the year-ahead outlook, current restrictions meant that firms required fewer inputs and staff members midway through the first quarter. Employment decreased for the second month running and at a broadly similar pace to that seen in January. This was also the case with input buying, which fell substantially.

Those firms that did purchase inputs during the month were faced with delivery delays and rising prices. Suppliers’ delivery times lengthened to a slightly lesser extent than January’s survey record, but one that was considerable nonetheless. Brexit was the principal factor for delivery delays, according to panellists, while there were also some mentions of supply-chain disruption due to the pandemic.

Supply issues and Brexit combined to cause a sharper increase in input costs, with the rate of inflation the fastest in 23 months. A number of firms highlighted rising metal prices. Overall, 43% of respondents signalled an increase in input costs during the month.

Widespread reductions in activity

The three monitored categories of construction all continued to record sharp contractions in activity, albeit with housing and commercial work falling at softer rates than at the start of the year. 

New work down sharply again 

In line with the picture for construction activity, new orders continued to fall sharply during February due to the COVID-19 lockdown. More than half of all respondents signalled a reduction in new business.