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
"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
Sharper reduction in housing
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
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
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.