 |
| Source: Markit Economics |
The Irish construction sector continued to deteriorate in June. Activity fell substantially again during the month, as did new business. Further job cuts were also indicated, although the rate of job shedding eased markedly. The Ulster Bank Construction Purchasing Managers’ Index (PMI) - - a seasonally adjusted index designed to measure the overall performance of the construction economy - - rose to 36.3 in June, from 31.1 in May. Although the pace of reduction eased to its slowest since March 2008, it remained considerable. The contraction was largely attributed to the continuing recession in Ireland. Sentiment in the sector improved.
Commenting on the survey, Simon Barry, Senior Economist at Ulster Bank, noted that: “Each sub-index of the PMI continues to point to low, and still falling, levels of construction activity. While Civil is a relative weak spot, all three sub-indexes increased in June and have moved further from their lows of earlier in the year. This adds to our sense that the most severe point of the construction contraction may be over.
“One interesting point from the June survey is that the index of expected future activity exceeded the key 50 no-change level for the first time since March ’08. This is an early sign of fading pessimism within the industry such that activity could begin to pick up on a 12-month time horizon, albeit from extremely low levels. We also note a 12-point increase in the employment index of the survey this month. Again, this index is at low levels and is still pointing to falls in construction employment. But the fact that this component is retreating from its record low suggests that the pace of job-shedding in the sector may be easing somewhat.”
Activity on residential projects declined sharply
All three areas of activity continued to post substantial declines in June. The steepest contraction was seen in the civil engineering sector. The pace of reduction of activity on civil engineering projects was broadly similar to that seen in the preceding month. Housing activity fell for the thirty-second month. The latest decrease was still considerable, despite registering the weakest decline since July 2007. The smallest contraction during the month was seen in the commercial sector, although activity still fell at a substantial pace.
Further fall in new orders
Although the pace of decline in new business slowed for the sixth successive month in June, it remained sharp. The current economic climate and tight credit conditions were reported as the principal causes of the contraction.
Slower reduction in employment
Lower workloads were largely responsible for the latest round of redundancies at Irish construction companies. Employment in the sector has now decreased in each of the past twenty-six months.
However, despite remaining considerable in June, the rate of job shedding eased considerably from the preceding month to its weakest since February 2008.
Input costs decreased substantially
Input costs decreased at a sharp pace as competition amongst suppliers led to further discounting. Input prices have fallen continuously since last September.
Purchasing activity declined considerably, reflecting lower workloads at construction firms. June’s fall was the twenty-sixth in a row, although it was the slowest since November 2007. Reduced business was also a key factor behind the latest improvement in average vendor performance, which was slightly more pronounced than in the month before.
Sentiment improved in June
Optimism was recorded in the sector for the first time since March 2008, although the degree of positive sentiment was still historically weak. A similar number of panellists expect the economic situation to improve over the coming year as anticipate it worsening.
