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Fall in Irish construction work continues

13 Dec 11 Construction activity in the Republic of Ireland has continued to fall, albeit at weakest pace since February, according to the latest Ulster Bank Construction Purchasing Managers’ Index (PMI ).

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The 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.  Index readings above 50 signal an increase in activity on the previous month and readings below 50 signal a decrease.

The individual figures were (with October's figures in brackets) 46.6 (42.8) for housing, 49 (45.4) for commercial activity and 39.7 (38) for civil engineering.

New orders were slightly lower overall during  November. Although some respondents noted signs  of improving demand, others reported that clients  remained cautious with regards to economic  conditions. 

Meanwhile, firms reduced employment again, and at a substantial pace. According to panellists, the volume of new work was  insufficient to justify employment levels, resulting in  further job losses during the month. The latest fall in  staffing levels was the fifty-fifth in a row, and was  considerable.

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Irish construction firms lowered their input buying  again in November, extending the current sequence of  reduction to 15 months. Although slowing fractionally  over the month, the decline was solid. Where  purchasing activity decreased, this was mainly in  response to fragile demand.   In spite of the drop in input buying, suppliers’ delivery  times lengthened again in November. Moreover, the  latest deterioration in vendor performance was the  most substantial in the current five-month sequence.  Input prices at Irish construction firms increased for  the 19th successive month. Although the latest  rise in input costs was marked, it was slower than that  seen in the previous month, and the long-run series  average. 

 “The November results of the Ulster Bank PMI survey offered some slight encouragement in terms of the latest trends in Irish construction,” said Simon Barry, Chief Economist Republic of Ireland at Ulster Bank. “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. 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.”  

PMIs are monthly surveys of selected companies. Questionnaires are completed in the latter half of each month and are collected and processed by economists at  Markit Economics. 

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