Construction activity falls at fastest pace in nearly three years

Activity slowdown saw a fall in employment in the sector for the first time in seven months

In line with the picture for total construction activity, work on housing projects decreased for the fifth consecutive month during September, AIB found. Picture Dan Linehan

The downturn in the Irish construction sector gathered pace at the end of September, with overall activity falling at its fastest pace since the end of 2022. 

In its latest Ireland Construction PMI, AIB reported a sharp reduction in activity, with employment also falling for the first time in seven months.

Firms also scaled back their purchasing activity, while the rate of input cost inflation eased to the weakest since last November.

The headline seasonally adjusted AIB Ireland Construction Total Activity Index dropped to 43.7 in September from 45.9 in August, below the 50.0 no-change mark for the fifth consecutive month and signalling a sharp monthly contraction in total activity. Moreover, the rate of decline was the fastest in almost three years. 

In line with the picture for total construction activity, work on housing projects decreased for the fifth consecutive month during September. The latest fall was marked, albeit softer than that seen in August and the weakest of the three monitored categories, AIB said.

The sharpest reduction was in civil engineering activity, while the commercial sector posted a much steeper decline than in August. AIB also noted that the drop in commercial activity was the most pronounced since December 2023.

"Anecdotal evidence pointed to a wider economic slowdown and delays in decision making by customers, while some reports suggested that the ability of firms to secure new orders was also impacted by a competitive pricing environment," the lender noted. 

New orders decreased for the second consecutive month in September, the report also noted, adding that although modest, the pace of decline was the fastest in just over a year and a half.

In line with the picture for new orders, employment decreased at the end of the third quarter, with the slight fall in staffing levels ending a six-month sequence of job creation. Purchasing activity was also scaled back, and at a solid pace, AIB said. 

Despite the drop in demand for inputs, suppliers' delivery times continued to lengthen amid reports of staff shortages at vendors and issues importing items. However, the latest decline in supplier performance was slightly less marked than in August.

Where firms did purchase inputs, they were faced with a further sharp increase in costs despite the pace of inflation easing to a ten-month low. Rates charged by sub-contractors also rose sharply, but at the weakest pace in three months.

"From a sectoral viewpoint, the weakness in activity remained broad-based, with all three sub-sectors recording a decline in activity, as was the case in August," said John Fahey, senior economist at AIB.

"Not surprisingly, against this backdrop of falling activity levels, there was a reduction in employment in the sector, ending a six-month period of jobs growth. 

"However, despite this challenging operating environment, firms retained an optimistic view that activity levels will increase over the coming 12 months," Mr Fahey added.