Fall in building activity worsens

OPERATING conditions in the construction sector worsened further last month, with the fall in building activity speeding up.

The latest monthly Ulster Bank Construction Purchasing Managers’ Index (PMI) – one of the main barometers for the sector – measured 40 for May, down from 42.5 in April. The survey has shown that building activity has consistently fallen on a monthly basis since June 2007.

“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 break-even level,” commented Simon Barry, Ulster Bank’s chief economist.

“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.”

However, Mr Barry added that while current survey readings continue to paint a picture of weakness in the sector, the more forward-looking elements of the PMI offer encouragement about the industry’s future prospects.

“Notably, the expectations index recorded another increase in May to show confidence at its highest level since March 2007, as firms expressed more hope that wider economic conditions will strengthen in the coming year,” he said.

However, May’s survey showed another decrease in new business orders, which extended that trend to 38 consecutive months, albeit with the rate of contraction easing to its weakest level since August 2007.

As activity fell, companies attempted to cut costs by continuing to cut their workforce. Staffing levels declined “at a considerable pace over the month,” according to the latest edition of the index.

But optimism reached its strongest level in the past 38 months.

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