The rate of contraction in Irish construction activity continued to ease from the sharp falls seen at the end of 2010, but output still decreased during February.
New business and employment both declined at sharper rates, as demand in the sector remained subdued. The Ulster Bank Construction Purchasing Managers’ Index (PMI) - - a seasonally adjusted index designed to track changes in total construction activity - - rose to 47.8 in February, from 45.3 in January, signalling a modest decline in construction activity in Ireland. Although the latest reduction was the weakest in six months, it still represented the forty-fifth consecutive monthly fall in activity.
Commenting on the survey, Lynsey Clemenger, Economist at Ulster Bank, noted that: "Activity in the Irish construction sector continued to fall in February, according to the latest reading of the Ulster Bank Construction PMI. However, the rate of decline was the slowest since August of last year, driven by less steep decreases in activity in each of the three sub-components housing, commercial and civil engineering. While the housing index is edging closer to the 50 mark that separates contraction from expansion, civil engineering remains a particular weak spot. Indeed, the latter is likely to continue to underperform given the ongoing retrenchment in government capital spending.
"Respondents to the survey noted continued declines in new work as a major factor in explaining the forty-fifth consecutive monthly decline in construction sector activity last month. Scarce new business has meant that employment in the sector fell at a faster pace in February and even modest job gains continue to look some way off. An additional negative in recent months has been the rising input prices, which are now increasing at the fastest rate since July 2008. The construction firms surveyed noted higher prices for copper, fuel and steel in particular, a clear sign that the recent increases in global commodity prices are impacting on the cost base for domestic firms. Despite the lack of new business and the notable rise in input costs, looking a year ahead constructors continue to expect that activity will be slightly higher than the depressed levels prevailing at present."
The number of firms polled was not supplied.
Steep contraction in civil engineering activity
Activity decreased across each of the broad sectors monitored, but rates of decline varied. Civil engineering again posted the steepest reduction in activity, while the residential sector posted a marginal contraction that was the weakest in the current sequence (which started in November 2006).
New business fell at sharper pace
Where respondents noted a drop in activity, falling new business was often cited. New orders fell at a solid pace in February and, in contrast to the trend for activity, the rate of decline accelerated since January. Panellists reported strong competition for scarce new business.
Job shedding intensified
Employment also fell at a faster pace during February. The rate of job shedding remained substantial as companies reduced staffing levels in line with falling workloads.
Steep input cost inflation recorded
Input prices rose substantially in February, and at the steepest rate in the current ten-month sequence of inflation. According to respondents, higher commodity prices was the main factor behind inflation, with copper, fuel and steel most widely mentioned as costing more over the month.
The rate of decline in purchasing activity accelerated in February, reversing the marked slowdown seen in January. Input buying has risen in just one month since May 2007. Suppliers’ delivery times lengthened for the second time in the past three months, albeit only slightly. Although some respondents reported improved vendor performance as demand for inputs decreased, this was more than offset by stock shortages at suppliers resulting in delivery delays.
Sentiment remained positive
Constructors expect activity to be higher in twelve months’ time than the current low levels. Optimism largely reflected predictions of increased new work, particularly in the second half of 2011.
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