Ulster Bank reports slowdown in growth rates in the Irish construction sector

By Business & Finance
10 August 2015
ulster bank exterior

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity – fell to 59.1 in July from 65.7 in June, its lowest reading in three months.

That said, the index still signalled a substantial monthly increase in construction activity, and the 23rd in as many months.

There were signs of a slowdown in growth rates in the Irish construction sector during July, but activity, new orders and employment all continued to increase sharply during the month and business sentiment picked up.

Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, noted: “The results of the latest Ulster Bank Construction PMI survey point to further robust increases in Irish construction activity in July. The overall PMI index did fall back a bit last month, but from what was an exceptionally strong reading in June and the July results signal that firms continue to experience rapid growth in activity. 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.

“Ongoing improvements in both the wider economy and the construction sector itself were cited as supports for the upbeat assessment of the 12-month outlook. 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.”

Slower rises in activity were seen on commercial and residential projects during July, with the commercial sector continuing to record the stronger rate of growth. Meanwhile, civil engineering activity decreased marginally, ending a three-month sequence of expansion.

In line with the trend for activity, the rate of growth in new business eased in July, but remained sharp. New orders rose for the 25th successive month, with improving economic conditions and the securing of contracts costed earlier in the year reportedly behind the expansion.

Staffing levels rose markedly, extending the current sequence of job creation to 23 months. Panellists reported having taken on extra staff in response to higher new business.

Companies continued to increase their usage of sub-contractors in July, leading to a further decline in their availability. Moreover, the availability of sub-contractors decreased at the fastest pace since November 2014.

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 imparted capacity pressure on suppliers, with delivery times lengthening markedly in July and to a similar extent as that seen in June.

The weakness of the euro against sterling was the main factor leading input prices to rise in July as companies reported higher costs for imported items. The rate of input cost inflation remained sharp and was faster than the series average.

Panellists predicted a further increase in activity over the coming year, linked to improving conditions in both the wider economy and the construction industry itself. Optimism strengthened over the month and was among the highest in the history of the survey, which began in June 2000.

Photo: Colin White