Source: Markit Economics

Business conditions at Irish construction firms worsened again in February, although there were signs that the rate of deterioration eased since the previous month. Activity declined sharply, but the pace of contraction was the weakest in twenty-seven months. The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the overall performance of the construction economy – rose to 40.4 in February, from 36.1 in the previous month to signal a further substantial fall of activity in the sector. Lower new business was the main factor driving the reduction inactivity. However, the rate of decline slowed for the second consecutive month to its weakest since November 2007.

Commenting on the survey, Lynsey Clemenger, Economist at Ulster Bank, noted that: “The latest reading of the Ulster Bank Construction PMI shows that a lack of new business is continuing to weigh on the domestically-focused construction sector. Activity remained well intocontractionary territory in February, albeit that the pace of decline was the slowest since November2007. This stands in contrast to the signs from the corresponding manufacturing and services sector surveys which have been more encouraging lately, with improved global conditions and an associated rise in export orders bringing these two sectors close to expansion. While new orders in construction firms continued to decline in February, the rate of contraction does look to be moderating. Nevertheless, with new business still falling, employment in construction firms continued to be scaled back, albeit at a slightly slower pace than in January.”

“Developments across each of the housing, commercial and civil engineering sectors mirrored the change in the headline construction PMI index, with all three sectors showing a tendency to contract ata less severe pace for the second month running in February. Looking ahead, firms continue to think that activity will improve in a year’s time, albeit that optimism levels did slip back a little following the surge in confidence in January.”

All monitored sectors posted declining activity: The fastest decline of the three monitored sectors in February was recorded in the civil engineering category, where activity has decreased every month since December 2007. Housing activity fell at the weakest pace in nearly three years, while the slowest contraction of the three sectors was posted in the commercial category.

Further sharp fall in new business: Uncertainty among clients, combined with intense competition, led to a further steep reduction in new business in February. The fall was broadly similar in strength to that seen in January.

Staffing levels continued to decrease: Consequently, Irish constructors cut jobs again in February, extending the current sequence of decreasing staffing levels to thirty-four months. The pace of reduction remained considerable, despite slowing to the weakest since last June.

Fastest decline in input costs since last September: With new business falling again in February, Irish constructors were cautious when making purchasing decisions. Consequently, purchasing activity decreased for the thirty-fourth month running, and at a substantial pace.

As demand for inputs decreased further in February, suppliers competed for new business by reducing their charges. Input costs at Irish constructors fell at the sharpest pace since last September. Falling workloads at suppliers were largely responsible for another shortening of lead times. Although the rate of improvement eased for the sixth successive month, it remained marked overall.

Sentiment eased since January: Optimism regarding future activity levels was recorded for the second consecutive month in February. However, the level of sentiment was slightly weaker than the long-run series average as panellists forecast that new business would remain difficult to secure.