The rate of expansion in the Irish construction sector stepped up last month, according to the latest results of the Ulster Bank Construction PMI survey.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that: “Growth in Irish construction activity accelerated markedly in June, according to the latest results of the Ulster Bank Construction PMI survey.  The rate of overall expansion picked up to a three-month high last month, as the headline index rose to 59.7 from 55.9 in May leaving it significantly above the 50 no-change benchmark.  The improvement was broadly based, highlighted by faster growth rates across the three main sub-sectors, with the sharpest increase recorded in Commercial activity, just ahead of Housing.  Firms also reported further robust increases in new business, with June marking three full years of steadily-rising new orders as the sector continues to distance itself from the depths of the downturn.

“The June Construction PMI survey was conducted over the second half of the month, with the majority of responses returned prior to the UK referendum result.  Thus, while some respondents knew the outcome of the referendum when responding to the June survey, it is too soon to judge the extent of any Brexit-related impact on confidence and activity in the construction sector.  In fact, the June results show that Irish construction firms are strongly optimistic about the prospects for future growth over the coming year.  Sentiment improved sharply last month and was just lower than the record high recorded in late 2014.  So while the PMI survey results will bear particularly close watching in the months ahead, the encouraging strength of activity, orders and sentiment at the end of the second quarter indicates that the Irish construction sector carries solid momentum into the second half of the year.”

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Sharper rises in activity across all three sectors

In line with the trend in total construction activity, each of the three monitored sectors saw rates of expansion quicken to three-month highs. The sharpest monthly increase was again on commercial projects, just ahead of residential. Civil engineering continued to post the weakest rise in activity, although the rate of expansion was marked.

New order growth picks up

Construction companies recorded another rise in new business, extending the current sequence of expansion to three years. Moreover, the rate of growth was substantial, having quickened to the fastest since March.

Rate of job creation at three-month high

The rate of job creation also quickened to a three-month high in June and was marked. According to respondents, a combination of increased business activity and company expansion plans had contributed to hiring.

After having decreased in each of the previous two months, sub-contractor usage rose in June. The availability of sub-contractors decreased considerably, and at one of the strongest rates in the history of the series. Meanwhile, the quality of sub-contractors declined to the greatest extent in the survey’s 16-year history.

Purchasing activity rose at a marked pace again in June, with respondents mainly linking higher input buying to new order growth. This increase in demand for inputs had a detrimental impact on suppliers’ delivery times. Lead times lengthened modestly, and vendor performance has now deteriorated on a monthly basis throughout the past five years.

Input prices continued to rise sharply at Irish construction firms in June, with panellists mentioning increased costs for insurance, oil and steel in particular. The rate of inflation eased slightly and was in line with the series average.

Business expectations improved in June and were only just shy of the survey record posted in November 2014. New order growth and expectations of further new business in coming months contributed to optimism.

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