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| Source: Markit Economics
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Irish construction data in July pointed to a further deterioration of operating conditions in the Irish construction sector. Activity and new business both fell substantially, despite the respective rates of decline easing during the month.
The pace of job cuts in the sector accelerated. The Ulster Bank Construction Purchasing Managers' Index (PMI) - - a seasonally adjusted index designed to measure the overall performance of the construction economy – rose for the second month in a row to 37.9 in July, from 36.3. Although this represented the slowest contraction of business activity in the sector since November 2007, the fall was still considerable. Anecdotal evidence suggested that the wider recession in Ireland was the principal cause of the decline.
Commenting on the survey, Simon Barry, Senior Economist at Ulster Bank, noted that: “Activity in the Irish construction sector remains weak, as evidenced by the fact that the Ulster Bank Construction PMI remains well below its average level over the last nine years. However, the overall PMI continues to pick up from its record low in January. The July reading of 38.4 was the highest since November 2007 as the index rose for the fifth month in six. This pattern is consistent with the theme that the rate of contraction in the sector is continuing to ease somewhat from the extreme weakness picked up by the survey at the beginning of the year.”
While the expectations index of the survey fell back very slightly in July, it is encouraging from a forward-looking perspective that it remains above the key 50 no-change level. Respondents linked the less pessimistic outlook to hopes that overall economic conditions will be on an improving trajectory in 12 months time. Nonetheless, a decline in the employment index this month acts as a reminder that conditions in the sector, especially housing, remain very challenging at present.”
Steep reduction in residential activity
Each of the three broad sectors monitored by the survey posted declines in activity during the month.
The sharpest contraction was in the residential category, where the pace of decline accelerated. The reduction in activity on civil engineering projects slowed markedly in July, but remained substantial.
Although commercial activity fell sharply over the month, the sector was the best performing of the three broad categories. The rate of contraction eased to its weakest since April 2008.
New business continued to contract
The ongoing economic downturn in Ireland was largely responsible for the latest reduction in new business as client confidence remained subdued. The pace of decline was sharp, despite easing to the slowest since March 2008.
Jobs cut at faster pace
Job shedding intensified in July as Irish construction firms adapted their workforces to lower new order levels. Employment has fallen continuously since May 2007.
Further sharp fall of input costs
Input costs at Irish construction companies continued to fall sharply over the month as competition amongst vendors intensified. However, the latest reduction was the weakest in 2009 so far.
Although the latest fall in purchasing activity was the weakest since September 2007, it remained considerable. Irish constructors continued to reduce input buying in response to lower new order levels.
Supplier lead times shortened at the fastest pace in four months during July as vendor workloads decreased further.
Optimism remained weak
For the second consecutive month, expectations regarding future activity were broadly neutral. A number of firms forecast rising activity over the next twelve months as economic conditions improve, while a similar proportion predict further declines in activity given the severity of the recession in Ireland.
