Building sector ‘closer to recovery’

ALTHOUGH still below the positive 50 point mark, the latest construction sector barometer from Ulster Bank hints that the industry is moving closer to recovery – with a rise in new business orders, an easing in the pace of job cuts and a slowdown in the decline in overall activity evident.

After June’s near five point increase to 44.9, the latest construction PMI (purchasing managers’ index) from Ulster Bank – covering July – showed a further, albeit much more marginal, rise to 45 points.

While anything below the 50 point mark still, obviously, indicates a sector in reverse, July’s increase means the latest measure of contraction in the industry is the slowest in three years.

Commenting on the latest edition of the survey, Ulster Bank chief economist, Simon Barry, said: “The July reading 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 of 2007.”

He added: “Looking forward, the July survey picked up a further improvement in confidence amongst 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.”

By far the biggest area of cheer in the latest construction PMI was an increase – albeit a modest one – in new business orders. This was the first rise in new business for more than three years; the last coming in March of 2007.

However, despite being welcome news, Mr Barry said it is not necessarily a sign of a huge recovery in the sector.

“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,” he said.

On the employment side, although the overall lowering in business activity meant a further fall in job numbers within the sector, the overall rate of job losses eased for the third consecutive month in July.

An independent survey – released at the time of the June PMI – from the Irish office of international recruitment specialist, Hays, found that there is still a strong sense of doubt over whether the building sector here will manage to recover over the next three years, with many working in the industry still looking at the possibility of moving abroad for work.