Slight slowdown for construction recovery

The construction industry continued to grow last month, extending its sequence of expansion to just shy of two years despite the weakness of the euro weighing on businesses.

There were signs of a slowdown in the level of growth seen in the sector during July with the continuing euro weakness creating sharp input cost inflation.

The pound has climbed to its highest level since 2007 against the euro in recent months to €1.41 — up close on 15% since last year.

The currency movement has put pressure on Irish firms by driving up the cost of imports from non-EU countries.

Despite the slowdown —which saw the Ulster Bank construction purchasing managers’ index fall from 65.7 to 59.1 in the month — the sector continued to expand, with activity, new orders and employment all growing, albeit at a slacker pace.

“The overall PMI index did fall back a bit last month but from what was an exceptionally strong reading in June and July results signal that firms continue to experience rapid growth in activity,” said Ulster Bank chief economist, Simon Barry.

“Mirroring the overall results, somewhat slower but still solid growth was recorded in both housing and commercial activity. The results for civil engineering were not as favourable, with activity here registering a decline in July, ending a three-month run of expansion.”

With above-50 readings representing expansion, civil engineering activity dipped to 49.1 for the first time in three months on the back of the smallest decline across the three sectors.

The housing and commercial sectors saw larger declines but remained in positive growth territory, nonetheless, with readings of 57.3 and 60.5, respectively.

Slower rises in activity were seen on commercial and residential projects during July, with the commercial sector still recording the stronger rate of growth.

“The July survey also reported further signs of healthy growth in the key areas of new orders and employment, though the pace of increase moderated slightly in these indices also. New business levels have been on the rise for over two years now — a pattern that is underpinning high levels of confidence within the sector,” said Mr Barry.

The sector is in for further growth in the coming year if respondents to the survey are to be believed.

A significant increase in positivity was seen last month with more than two-thirds of those surveyed expecting activity levels to rise further in the coming year.

Ongoing improvements in both the wider economy and the construction sector as a whole were reported.

More generally, the July figures point to an encouraging start to the second half of the year, with construction sector recovery momentum looking healthy in the early part of the third quarter.

The sustained improvement across the sector was reflected in staffing levels which rose substantially in July. Higher levels of new business encouraged firms to add to their workforces for the 23rd straight month.

Purchasing activity rose at a substantial pace that was only marginally slower than seen in the previous month.

Respondents indicated that increased workloads had been the main factor leading to higher input buying. This rise in demand for inputs created capacity pressure on suppliers, with delivery times lengthening .