Source: Markit

Irish Construction activity continued to decrease in May as activity fell at a faster pace and, although the respective rates of decline in new business and employment both slowed in May, they remained sharp. Input costs in the sector increased for the first time in twenty-one months. The survey also shows the strongest optimism in thirty-eight months.

The Ulster Bank Construction Purchasing Managers' Index (PMI) - - a seasonally adjusted index designed to track changes in total construction activity - - posted 40.0 in May, to signal a substantial decline in activity that was steeper than that seen in the previous month (42.5). Activity has fallen continuously since June 2007.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that: “The latest reading of the Ulster Bank Construction PMI confirms that the slump in construction activity continued last month. Indeed, the May reading indicates that the recession in the beleaguered construction sector has now lasted for three full years, as the index level of 40 was the 36th consecutive reading below the 50 breakeven level. There was not much variation in the performance of the main sub-sectors, with each of Housing, Commercial and Civil Engineering all contracting at a similar pace in May. A fresh, additional challenge facing the sector picked up by last month's survey was the first rise in input costs since August 2008, a development that partly reflects the euro's fall on the currency markets in recent months which looks to be exerting upward pressure on import prices.

Further sharp fall in activity

Activity decreased at broadly similar rates across the three sectors monitored by the survey in May. Activity on both residential and public sector projects contracted at sharper rates than in April. Conversely, commercial activity fell at a slightly weaker pace.

Slower fall in new orders

New business decreased again in May, extending the current sequence of reduction to thirty-eight months. However, the rate of contraction was only modest, having eased to the weakest since August 2007.

Considerable decline in staffing levels

As new business continued to fall, Irish construction firms lowered employment accordingly. Job shedding was also part of attempts to limit costs. Consequently, staffing levels declined at a considerable pace over the month.

First rise in input costs since August 2008

Average input costs at Irish constructors increased for the first time since August 2008. The rise reflected higher raw material costs, as well as the relative weakness of the euro against the dollar which resulted in higher import prices. That said, the rate of input cost inflation was only modest and slower than the long-run average for the series.

The reduction in new business recorded in May led to a further decline in purchasing activity at Irish construction firms. Although the latest fall was the weakest since September 2007, it was still substantial. As demand for inputs decreased, suppliers were able to shorten their delivery times.

However, the rate of improvement in May was the smallest in thirty-four months.

Strongest optimism in thirty-eight months

With improving economic conditions boosting client confidence, optimism in the sector improved to its strongest in thirty-eight months. Constructors have expected activity to be higher in twelve months' time throughout 2010 so far.