Source: Markit Economics

Irish construction sector data in December 2009, signalled a further deterioration of business conditions in the Irish construction sector. Activity, new business and employment all fell at faster rates during the month. For the second consecutive month, firms forecast that activity would be lower in twelve months’ time than current levels.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) - - a seasonally adjusted index designed to measure the overall performance of the construction economy - - dropped to 33.1 in December, from 34.2 in November. This represented the thirty-first consecutive monthly reduction in activity, and the steepest decline since May. Anecdotal evidence suggested that new work was insufficient to compensate for the completion of existing projects.

Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “The December reading of the Ulster Bank Construction PMI reveals a very weak end to what was an exceptionally challenging year for the Irish construction sector. The overall activity index fell back to its lowest level since May of last year. At 33.1 the index remains considerably below the no-change benchmark level of 50 and continues to point to a sector that is contracting deeply. While a pick up in international economic conditions is beginning to benefit the Irish manufacturing and service sectors, the same is clearly not true for the domestically-focussed construction industry.

“The detailed results of the survey showed broad-based weakness across commercial, civil engineering and housing, with a 2.5 point reduction in the index of home-building activity making it an underperformer last month. There were also further reductions in incoming new business in response to which firms are continuing to lay off workers, with the employment index falling to its lowest level in seven months.”

Widespread declines in construction activity

Rates of decline accelerated across all three of the monitored construction categories in December. The steepest reduction was in the commercial sector, where the contraction was the fastest in seven months. The weakest fall during the month was registered for activity on civil engineering projects, although the decrease in the category was still substantial.

Further reduction in new business

New business also declined at a faster pace during December, with the considerable rate of contraction the sharpest since April. Increased competition for new work was behind the reduction, with panellists also reporting a reluctance amongst clients to commit to new projects.

Falling workloads led to job cuts

Employment continued to decrease in December, largely reflecting falling workloads. Job cuts have been recorded in each month since May 2007, with the latest reduction in staffing levels the fastest in seven months.

Steeper decline in purchasing activity

With activity and new business continuing to fall, Irish construction firms lowered their quantity of purchases substantially again in December. Purchasing activity has now decreased in each of the past thirty-two
months.

Falling workloads at suppliers were the main reason for another improvement in average vendor performance. Lead times shortened markedly in December, although the latest improvement was the weakest since September 2007. As has been the case in each month since September 2008, input costs at Irish construction firms fell in December.

According to panellists, the latest reduction was largely due to intense competition amongst suppliers.

Further negative sentiment registered

For the second successive month in December, firms reported negative sentiment regarding future activity levels. Construction companies’ pessimism largely reflected expectations that new business would remain low during the coming year.

Source: Markit Economics