Source: Markit

Irish Construction: July data indicated that the Irish construction sector moved closer to recovery during the month. New business increased slightly, while activity decreased at a slower pace. The rise in new orders encouraged firms to remain optimistic regarding the future prospects for activity. The Ulster Bank Construction Purchasing Managers’ Index (PMI) - -  a seasonally adjusted index designed to track changes in total construction activity – increased marginally during July to 45.0, from 44.9 in June. Although this pointed to a further marked reduction in activity, the rate of contraction was the slowest in three years.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that: "The July reading of the Ulster Bank Construction PMI indicates that conditions in the Irish construction sector clearly remain very tough at present. The headline activity index shows that activity fell once again last month, extending the period of decline to over three years. With activity levels across all three sub-sectors of housing, commercial and civil engineering continuing to slide, firms are continuing to cut back sharply on their employment levels, though the pace of job cuts did ease to the slowest seen since September 2007

"Looking forward, the July survey picked up a further improvement in confidence among Irish construction firms. The index of future business activity reached its highest level since early 2007 as firms continue to believe they will see some increase in activity as they look 12-months ahead. Interestingly, this month’s survey yielded the added encouragement of the first rise in new business since March 2007. As heartening as this development is, the increase is very modest indeed and it is probably more an indication of possible stabilisation in the sector at very weak levels rather than a strong recovery any time soon."

Housing activity fell sharply: The steepest decline in activity of the three monitored sectors was recorded in the residential category, where the rate of contraction accelerated markedly during the month. In contrast, both the commercial and civil engineering sectors posted slower declines than in the previous month, with the weakest fall in activity seen on commercial projects.

First rise in new orders since March 2007: New business at Irish construction companies increased for the first time in forty months during July, with some panellists reporting rising maintenance contracts. Although the rate of expansion was only slight, it was broadly in line with the long-run average for the series.

Further steep reduction in staffing levels: Despite the marginal increase in new business, lower total activity continued to lead to falling employment in the sector. The rate of job cuts remained substantial, despite easing for the third month running.

Slowest fall in purchasing activity in current sequence of decline: Purchasing activity fell for the thirty-ninth consecutive month in July. However, the latest modest reduction was the weakest in this sequence as higher new orders led to a slowing in the pace of decline. As demand for inputs fell modestly in July, suppliers were able to shorten their delivery times again during the month. The latest improvement was in line with the long-run series average.

Higher raw material prices were the principal factor behind the latest increase in input costs at Irish construction firms. However, the fragility of demand in the wider economy meant that the rate of inflation was only slight, and the slowest in the current three-month period of rising input costs.

Optimism recorded again in July: Business sentiment remained strongly positive in July, and improved slightly since the previous month. Close to 41% of respondents expect activity to be higher in twelve months’ time than current levels. In many cases this reflected tentative signs of rising new business.