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Irish Construction: April data pointed to a further deterioration of operating conditions in the Irish construction sector. Both new business and employment fell at faster rates, while overall activity continued to contract substantially.
The pace of reduction in input costs slowed markedly during the month. The Ulster Bank Construction Purchasing Managers' Index (PMI) - - a seasonally adjusted index designed to track changes in total construction activity - - posted 42.5 in April, signalling a broadly similar rate of activity contraction as in the previous month (42.3). Activity at Irish construction companies has now decreased in each of the past thirty-five months.
Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that: “The Ulster Bank Construction PMI indicates that construction activity fell for the 35th consecutive month in April. At 42.5, the headline activity index clearly remains below the breakeven level of 50. However, it has managed to rise in each of the first four months of this year and now stands at its highest level in two and a half years - a trend that points to an easing in the rate of contraction in construction output in recent months.” undefined
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“Nonetheless, this leaves the construction sector as a clear laggard in terms of the sectoral recovery stakes, as both the services and manufacturing PMIs have indicated a return to positive growth in those sectors in the past couple of months. Construction isn't benefitting from the global recovery to the same extent as other areas of the economy, but there is some encouragement to be taken from the less negative trajectory which has emerged so far this year. Furthermore, construction firms are becoming more optimistic about the future. The expectations index of the April survey showed confidence at its highest level in three years reflecting an ongoing improvement in sentiment regarding prospects for the overall economy.”
Activity fell across all three broad sectors
Each of the three broad construction categories posted lower activity during April. The steepest contraction was registered in the commercial sector, where activity decreased substantially, and at the fastest pace in three months. While both the residential and civil engineering sectors recorded slower falls than in the preceding month, in each case they remained sharp overall.
Steeper reduction in new business
According to respondents, the latest reduction in activity largely reflected a fall in new business. The rate of decline in new orders accelerated since the previous month, and was marked. Panellists indicated that demand among clients continued to fall, and intense competition for new business.
Employment decreased sharply
A scarcity of new work was the main reason behind another sharp drop in employment at Irish construction companies in April, extending the current sequence of reduction to three years. Jobs were also cut more quickly than in the previous month.
Slowest fall in input costs since September 2008
Although input prices fell again during April, the pace of decline eased markedly since March and was the slowest since September 2008. Intense competition among suppliers was the key factor behind the latest fall in input costs.
As has been the case throughout the past three years, construction firms lowered their purchases of building materials in April. The latest sharp reduction reflected falling workloads. With demand for inputs continuing to decrease, constructors registered a further shortening of lead times. The latest improvement was weaker than those seen during 2008 and 2009, but was still sharper than the long-run series average.
Sentiment improved to strongest since March 2007
Irish construction firms expect activity to be higher in twelve months' time than current low levels, as the wider economy begins to recover. Moreover, the level of sentiment in April was the strongest since March 2007.
