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Irish construction activity continues to fall

16 Aug 12 The contraction in the Irish construction sector deepened again in July, with both activity and new business falling at faster rates.

The rate of job cuts accelerated as a result. Meanwhile, input prices decreased for the first time since April 2010.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity – dipped to 42.2 in July for the Republic of Ireland, from 42.5 in June. Figures below 50 signify a fall. The reading represented the sixty-second consecutive monthly reduction in activity, and the sharpest since September 2011.

Weak client confidence and poor weather conditions had impacted negatively on activity, according to respondents. Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “The latest reading of the Ulster Bank Construction PMI paints a downbeat picture of the Irish construction sector as the second half of the year got under way. The headline index of overall activity fell for a second consecutive month to stand at a 10-month low in July. At 42.2, the July PMI is some distance from the breakeven level of 50, thus indicating that the sector continues to be characterised by widespread declines in activity. There was a slight easing in the pace of decline in housing activity, but activity fell at a sharper pace in both the commercial and civil engineering sub-sectors, with the latter recording the weakest performance of the three sub-sectors in July.”

He added that near-term prospects for the construction sector do not look encouraging. “Signs of stabilisation in new orders around the turn of the year have given way to renewed weakness in recent months, in turn dampening hopes for a stabilisation in construction activity levels more broadly. Order levels contracted at their fastest pace since February 2010 last month, as firms reported a lack of demand for new work and strong competition for available business as key challenges. With current and prospective workloads continuing to decline, staffing requirements for construction firms continue to shrink, with the rate of job-shedding accelerating in July to its strongest in six months.”

Of the three monitored sectors, the sharpest reduction in activity was seen on civil engineering projects, where the rate of contraction was the fastest in four months. Commercial activity also declined at a stronger pace than in the previous month, but the pace of reduction in the housing sector slowed to the weakest since January.

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Strong competition and falling demand contributed to a seventh successive reduction in new orders at Irish constructors. Furthermore, the rate of decline was considerable, and the sharpest since February 2010.

Irish construction companies lowered their employment levels in July, as has been the case in each month since May 2007. Moreover, the pace of reduction was the strongest in six months. Panellists linked the latest fall in employment to decreased workloads.

Input costs decreased at Irish construction firms in July, ending a 26-month sequence of inflation. That said, the pace of reduction was only modest.

Declining new business led to a further reduction in purchasing activity in July, and the rate of contraction quickened for the sixth month running. Construction firms have lowered input buying in each month since September 2010. Despite demand for inputs decreasing, suppliers’ delivery times continued to lengthen, largely due to stock shortages at vendors. The pace of deterioration was broadly in line with that seen in the previous month.

Although firms continue to predict a rise in activity over the coming 12 months, the level of optimism dropped in July to the weakest in three months. Those respondents that forecast activity to increase linked this to hopes of improving economic conditions and growth in overseas work. However, weak client confidence continued to weigh on the business outlook.

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