Slump in construction to continue

THE four-year slump in the Irish construction sector is set to continue with all three areas of activity — civil engineering, commercial and residential — continuing to decline, according to the Ulster Bank Construction Purchasing Managers’ Index.

The index, a seasonally adjusted index designed to track changes in total construction activity, found that all three monitored sub-sectors recorded declines in activity, led again by civil engineering where the rate of contraction was substantial. The index posted 42.1 in July, up from 40.5 in June. Any figure below 50 indicates a decline in activity. Falling construction activity has been recorded in each of the past 50 months.

“The only sector to record a sharper decline than in the previous month, however, was commercial, while activity on residential projects fell at the weakest pace since March,” the report states.

Ulster Bank chief economist Republic of Ireland Simon Barry said: “The latest reading of the Ulster Bank Construction PMI shows that business conditions remained extremely tough for Irish construction firms in July. The headline activity index remains well below the breakeven level of 50 indicating that the sector continued to experience large declines in activity at the beginning of the second half of the year.

“Having said that, the PMI did rise a little in July, suggesting a slight easing of the pace of decline last month. Housing activity showed its smallest decline since March, as did civil engineering — though this latter area remains the weakest link in the sector, not helped by the retrenchment in Exchequer capital spending.”

Mr Barry said the near-term prospects continue to be hampered by a dearth of new business, as new orders registered an eleventh consecutive monthly fall.

“The pace of decline did ease to its slowest in ten months, hinting at a slightly less negative dynamic here. Similarly, employment trends are looking a little less negative, as the rate of decline in staffing levels was at its slowest pace in four years last month. Nevertheless, with activity and order levels remaining under pressure, the Irish construction sector remains very much in job-shedding mode at present.”

The fall-off in new business declined slightly, the survey indicates, with panellists partly attributing the reduction in new orders to fragile client confidence.

The survey found as demand continuing to decrease, construction firms adjusted their workforces and, in some cases, leaving staff were not replaced.

While the average input prices increased for the fifteenth consecutive month in July, with higher fuel costs mentioned by respondents, the rate of inflation eased for the third consecutive month, and was the slowest since January.

The survey authors note that while construction activity is expected to rise from current low levels over the coming year, mainly due to a predicted improvement in economic conditions — the level of positive sentiment dipped in July to the lowest in five months.