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News : Property Last Updated: Apr 11, 2011 - 3:59 PM

Irish construction activity fell at faster pace as new orders declined further in March
By Finfacts Team
Apr 11, 2011 - 12:19 AM

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Source: Markit 

The Irish construction sector remained some way from recovery in March. Activity and new orders declined again during the month, and firms cut purchasing and employment accordingly. Meanwhile, the rate of input cost inflation in the sector accelerated further.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) - -  a seasonally adjusted index designed to track changes in total construction activity - - dropped to 46.1 in March, from 47.8 in the previous month. The latest reading represented a solid reduction in activity in the sector, which was faster than that seen in February. According to respondents, falling new orders was the main factor behind the contraction in activity.

Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, noted that: "Irish construction sector activity declined for the 46th month in a row in March, according to the latest reading of the Ulster Bank Construction PMI. A look at the more detailed breakdown of the three main sub-components, namely housing, commercial and civil engineering activity, shows some mixed results. The pace of decline in housing accelerated to its fastest since December of last year. Meanwhile, the rate of decrease in both commercial and civil engineering slowed a little, albeit that the latter continued to show the sharpest rate of contraction of the three sectors.

"A lack of new business continues to dampen activity in the Irish construction sector, with almost 30% of respondents to the survey reporting a decline in orders last month. An additional headwind for the sector at present is rising input prices for oil and fuel in particular, related to upward pressure on commodity prices at the global level. Despite the unfavourable backdrop of ongoing declines in new orders and higher input prices, almost half of the construction firms surveyed expect activity to be above the current depressed levels in 12 months’ time. In fact, the degree of positive sentiment around future activity was the highest in some four years last month. Nevertheless, with present activity levels still extremely low, employment in the construction sector continued to decline in March, as it has done in each month since May 2007."

The number of polled firms has not been provided.

Sharper reduction in housing activity

The faster overall decline in construction activity was reflective of a steeper fall in housing activity during the month. The sharpest overall contraction was seen in civil engineering activity, while activity on commercial projects fell at the weakest pace since August 2010.

Seventh successive drop in new orders

New orders fell again in March, extending the current period of decline to seven months. Firms indicated that the number of tenders had decreased and, where new work had become available, it was priced at reduced rates.

Steep decline in employment

Job cuts were recorded in March, as has been the case in each month since May 2007. Moreover, the rate of decline in employment remained substantial as firms lowered staffing levels in line with reduced workloads.

Input buying decreased at faster pace

Falling activity requirements led to another substantial fall in input buying. The pace of reduction quickened for the second month running following the relatively weak decline in January (which was weather-related).

Input price inflation accelerated fractionally in March, and was the sharpest since July 2008. Higher commodity prices had reportedly been a key factor behind the latest increase, with panellists reporting rising fuel and oil costs in particular. Price inflation has been recorded in each month since May 2010. Suppliers’ lead times lengthened slightly again in March, as reduced stock holdings led to delivery delays. Delivery times have slowed in three of the past four months.

Further optimism recorded

Irish construction firms are optimistic regarding the prospects for activity growth over the coming year from current low levels. Around 45% of respondents expect business activity to increase over the next twelve months.

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