Construction sector records sluggish February

AIB Construction PMI (Purchasing Managers Index): Input costs for the sector rose at the fastest pace last month in almost two years

Housing development 'remained the best performer' out of the three construction subsectors, seeing activity rise for the sixth straight month.

Despite activity in the residential development sector performing at a “solid pace” last month, the overall construction sector has seen a decline, highlighting the “muted operating environment for building activity”, the latest AIB Purchasing Managers Index (PMI) shows.

The AIB Construction PMI for February noted a number of “mixed trends” throughout last month with new orders returning to growth and positive signs in terms of work on housing and commercial projects.

However, total construction activity continued to moderate amid economic uncertainty.

The sector had a PMI reading of 48.7 for February — up slightly from 48.2 in January. However, it is still below 50 which indicates a contraction in the sector. Any number above 50 indicates growth.

Employment in the sector also declined during February, ending a five-month period of jobs growth.

According to those surveyed for the PMI, economic uncertainty played a part in the latest reduction in activity.

AIB senior economist John Fahey said this “slight improvement” implies that “the pace of decline in activity eased slightly” but this is still the “fifth time in six months that the index has been below 50, highlighting the muted operating environment for building activity”.

Residential is strongest sector

The construction sector encompasses three different sub-sectors — residential development, commercial development, and civil engineering projects.

The PMI showed that housing development “remained the best performer” seeing activity rise for the sixth straight month and “at a solid pace that was sharper than in January”.

Commercial activity rose “modestly”, according to AIB, while civil engineering projects continued to decline, retaining its position as the weakest of the three sectors.

Mr Fahey said there have been some “encouraging signs” coming out of the new orders index “which is regarded as a key leading indicator”.

“The index moved back up into growth territory having declined during a weather-impacted January,” he said.

“Survey respondents noted improved demand and greater capacity as factors in the return to expansion in new orders.”

New orders increased for the third time in the past four months, albeit only marginally in February.

Surge in input costs

Input costs for the sector rose at the fastest pace last month in almost two years, AIB said, as suppliers hiked their charges.

The PMI noted that one-third of respondents signalled a rise in input prices during the month. The cost of sub-contractors also increased at a sharper pace in February.

Shortages of staff and materials at suppliers caused a build-up in their backlogs of work, in turn resulting in lengthening delivery times for construction firms.

Confidence in the year ahead has dropped among construction firms, hitting a 10 month low. AIB said optimism was supported by confidence in the future path of demand for housing, but there was some caution expressed given uncertainty around plans for tariffs.