Construction sector woes worsen

THE contraction of the battered construction sector is accelerating with orders and employment continuing to fall, the Ulster Bank Construction Purchasing Managers’ Index indicates.

The seasonally adjusted index, designed to track changes in total construction activity, decreased to 40.5 in June, from 41.1 in May, to signal a further steep decline in activity. The rate of contraction accelerated for the fourth successive month, and was the sharpest since May 2010.

Ulster Bank’s Republic of Ireland chief economist Simon Barry said the monthly index shows there were no signs of any imminent improvement in the Irish construction sector

“In fact, the rate of deterioration in activity accelerated for the fourth month running in June as the PMI fell to its lowest level in over a year. In fact, activity levels have now fallen in every month since June of 2007, meaning that the construction slump has now entered its fifth year.

“There was a slight easing in the pace of decline in housing and commercial activity last month, but with PMI readings of close to 40 in each case — well below the expansion threshold of 50 — these two sub-sectors remain firmly in contraction mode. But, as has been the case for most of the past year, the weakest sub-sector is civil engineering which continues to contract at a particularly sharp pace,” he said.

Looking to the second half of the year, Mr Barry said near-term prospects for the sector as a whole don’t look bright, as incoming orders for new business in June fell at their fastest pace since late last year.

“Employment, too, continues to fall away, though the pace of decline in June was the slowest in almost four years. Looking further ahead, over 40% of firms expect activity levels to be higher in 12 months time, albeit this is down on the 46% of firms which held that view last month,” he said.

While all three areas covered by the survey — housing, commercial and civil engineering — showed falls in activity, the fastest decline in activity was seen for civil engineering projects, where the rate of contraction quickened markedly to the sharpest seen in 2011 so far.

“Where new orders fell, panellists indicated that fragile client confidence, given weak economic conditions in Ireland, had impacted negatively on demand,” the report states.

While the sector is being hit with diminishing order books, higher prices for metals, plastics and oil-related products were reportedly the main sources of input cost inflation in June.

Input prices increased substantially, although the rate of inflation eased to the weakest since January, the survey found.

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