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News : Irish Last Updated: Jan 15th, 2008 - 08:37:09

Irish Construction: December data signalled record falls in activity - housing, civil engineering and commercial sectors
By Finfacts Team
Jan 14, 2008, 03:05

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Source: NTC Economics

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the overall performance of the Irish construction economy – posted its lowest reading in the series history (which began in June 2000) at 35.7. The substantial decline in activity in the three sectors - housing, civil engineering and commercial - was attributed by firms to the conclusion of existing projects and a lack of new work to replace them.

Commenting on the survey, Pat McArdle, Chief Economist at Ulster Bank, noted that “House completions are declining at record rates. As housing is two-thirds of construction this dragged overall construction activity into negative territory since mid-2007. However, December was unusual in that the other two components – commercial and civil – also contracted. Commercial activity has been teetering for some time but is now recording a significant decline. This has happened sooner than expected given that a good number of high-profile projects have yet to complete. The fall in civil activity is surprising as the National Development Plan was maintained and, indeed, accorded priority status in the recent Budget.

“The outlook remains poor as orders are also at a record low and so is employment. It appears that projects finished are not being replaced and developers are reacting accordingly. As a result, confidence has now turned clearly negative though it is still above the 2001 and 2003 lows. It remains the case that the more drastic the curtailment of housing activity, the sooner the existing backlog will be cleared, allowing activity to resume.”

Broad-based fall in activity recorded in December

Activity fell across all three construction areas monitored by the survey in December, with housing activity continuing to fall substantially. Following growth in the previous two months, civil engineering activity declined markedly, while commercial activity fell at its sharpest rate for almost four-and-a-half years.

Source: NTC Economics

New orders fell at survey record pace

In December, new orders fell for the ninth month running, reflecting a deterioration in demand – particularly for house building. Moreover, the rate of decline in new work was the sharpest in the survey history with more than a third of firms noting a fall.

Staffing levels also fell substantially

In line with the trend in new orders and activity, employment at Irish constructors fell at a survey record rate in December. Staffing levels have now contracted in each month since May. A number of firms commented that staff had been laid off as existing projects came to a close.

Cost inflation continued to soften

Prices paid for inputs continued to rise in December, although the rate of cost inflation eased for the third month in a row and was the weakest since November 2003. Some firms reported that competition amongst suppliers had restricted input price inflation.

Purchasing activity fell at the sharpest rate since May 2003. The sharp fall in input buying was linked by firms to reduced activity needs and sufficient stock levels.

Lower input buying led to less pressure on suppliers and consequently to a survey record improvement in vendor delivery performance.

Constructors were pessimistic about the year ahead

Data for December signalled a marked degree of pessimism amongst Irish construction firms, with more than 36% of firms expecting activity to be lower at the end of 2008. The negative outlook was attributed to a shortage of new work for tender and tight credit conditions. Constructors were at their most pessimistic for fifty-three months.

© Copyright 2007 by Finfacts.com

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