Rate of decline slows in construction industry

Rate of decline slows in construction industry

Simon Barry of Ulster Bank

Activity at Irish construction companies continued to fall in November, although the rate of decline slowed. New business declined marginally as clients remained cautious regarding economic conditions. Meanwhile, firms reduced employment again, and at a substantial pace.

The Ulster Bank Construction Purchasing Managers’ Index (PMI)  —  a seasonally adjusted index designed to track changes in total construction activity – –  increased for the second month running to 47.7 in November, from 45.2 in October. The reading represented the weakest fall in activity in the sector since February, but extended the current sequence of contraction to four-and-a-half years.

Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, noted that: “The November results of the Ulster Bank PMI survey offered some slight encouragement in terms of the latest trends in Irish construction. We noted last month that the New Orders index managed to exceed the key expansion-contraction threshold level of 50 for the first time in 13 months.

“It did edge fractionally lower in November, but at 49.8 is just fractionally below the breakeven level and the trend in this index is tentatively suggesting that the multi-year slump in new business may be entering its final phase. It is important not to overplay this point, however, as even the deepest and most protracted downturns eventually come to an end, so the indication of a less negative trend in new business in Irish construction is really a function of the severity of the declines seen over the past four and a half years.

“Moreover, whatever the tentative signs of stabilisation in new orders, the November survey results show further declines in actual activity levels across the sector. The PMIs for each of Housing, Commercial and Civil Engineering all remained below 50. Civil Engineering was again the weakest sub-sector, as the ongoing retrenchment in the Exchequer Capital Programme continues to contribute to this area’s underperformance. However, the overall PMI did rise by 2.5 points in November to stand at 47.7.

“The number of firms polled has not been supplied, which suggests that the sample is small. This is the highest reading since February, and is consistent with an easing of the pace of decline in overall construction activity. This was especially the case in the commercial sector where the activity index rose to its highest level in fifteen months and, at 49, is now flirting with the breakeven mark. Elsewhere in the survey, there was a marginal uptick in firms’ confidence about future business activity, but perhaps next month’s results in this area will be of more interest in terms of whether there will be any end of year boost to sentiment from the support measures targeting the property sector introduced in last week’s Budget.”

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