Source: Markit Economics

Irish Construction: Ulster Bank PMI data for October indicated that conditions in the Irish construction sector worsened considerably over the month, as new business fell sharply and job shedding intensified. Cost pressures eased for the second successive month. The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the overall performance of the construction economy – dropped to 31.2 in October, from 32.2 in September. This represented the second steepest decline in activity at Irish construction firms since data were first collected in June 2000. Companies attributed the latest fall to the wider economic downturn. There was a steep decline in commercial projects.

Commenting on the survey, Pat McArdle, Chief Economist at Ulster Bank, noted that: “With the Manufacturing and Services PMIs hitting record lows in October, it was not surprising that Construction was also weak. This month, the downturn was mainly in the commercial construction sector, where the index sank to the lowest reading in the history of this series and also dropped below the comparable housing index for the first time since July 2006. Commercial activity is now in the eye of the storm. In fact, the housing index bounced a bit but, essentially, still continues to trend sideways, indicating very low levels of activity.

“Also of note this month was the dramatic fall in input prices – this index is now well into negative territory, i.e. falling prices, the first time that this has happened since the survey began in June 2000. This reflects falling fuel costs but prices of other inputs, e.g. some concrete products, are now beginning to fall.”

The contraction in activity was most marked in the commercial sector, where over half of all panellists noted a decline over the month. For the first time since July 2006 housing activity did not register the steepest decline of the three monitored areas, despite posting a further sharp fall in activity in October. Civil engineering activity contracted for the eleventh month in a row, although the pace of reduction weakened.

October saw a further considerable decline in new business at Irish construction companies. Although the pace of reduction eased compared with September, it was still the fourth sharpest in the history of the series. Anecdotal evidence suggested that a lack of demand in the wider Irish economy had led to the fall.

Jobs were cut in October at the third fastest pace in the history of the survey. Firms trimmed their workforces in response to lower activity requirements as the economy continued to slow.

Input price deflation accelerated in October as falling input costs were recorded for the second month running. Panellists attributed the latest fall to the global economic downturn and lower oil prices.

Irish construction firms’ purchasing activity has been cut throughout the past year-and-a-half, although the latest fall was the slowest since April. Companies reported that they lowered their level of purchases as demand weakened. A lack of work at the suppliers of construction companies in Ireland led them to improve performance markedly.

Firms at most pessimistic since July

Irish construction firms were pessimistic about future business conditions for the seventh consecutive month, posting the most negative outlook since July.

Around half of firms expected activity to be lower in twelve months’ time.