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Irish construction decline accelerates

10 Sep 12 The Irish construction sector contracted further in August as the declines in activity and new orders quickened over the month.

Businesses subsequently lowered their employment and purchasing activity, while sentiment dropped to the weakest since December 2010.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity – posted 40.7 in August, down from 42.2 in the previous month. Figures below 50 show decline. The latest reading signalled a substantial reduction in activity that was the sharpest since September 2011.

Ulster Bank economist, Republic of Ireland John Fahey said: “The August reading of the Ulster Bank Construction PMI shows that the Irish construction sector continues to experience falling activity levels. The latest survey results indicate an acceleration in the pace of contraction, with the headline index of overall activity falling to 40.7 in August, the fastest pace of decline since September 2011. From a sectoral perspective, the weakness recorded in August was broad-based, with all three of the principal sub sectors experiencing declining activity levels. The sharpest contraction was registered in civil engineering activity, although activity levels in both housing and commercial activity also declined at a faster pace last month. Given the persistent falls in activity levels, the construction sector continues to shed jobs, albeit at a slightly slower pace in August.

“In terms of the outlook for the construction sector, near term prospects look gloomy, as the sector is weighed down by the lack of new business. The new orders index, which is regarded as an important lead indicator, posted its fastest pace of contraction since December 2009, suggesting a challenging outlook for the construction industry over the coming months.”

There was falling activity across all three monitored sectors. The sharpest decline in August was registered on civil engineering projects, where activity decreased at the fastest pace in six months. The slowest reduction was seen for commercial activity, although the fall in the sector was still marked.

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The rate of contraction in new orders accelerated for the fifth successive month in August, and was the sharpest since December 2009. Weak demand in both domestic and foreign markets, as well as fragile confidence in the sector, were factors highlighted by panellists that recorded a fall in new orders.

Irish construction firms lowered their staffing levels in line with declining workloads. Employment has fallen in each month since May 2007, and the latest reduction was sharp.

Falling new business led to another reduction in purchasing activity. The rate of decline remained considerable, and was marginally quicker than the previous month. Input buying has decreased in each month throughout the past two years.

Although demand for inputs continued to decrease sharply, suppliers’ delivery times lengthened further during August. Respondents indicated that low stock levels at vendors had contributed to the deterioration in supplier performance. After falling in the previous month, input costs increased amid higher oil and fuel prices. However, the rate of inflation was slower than the long-run series average.

Business confidence deteriorated in August, and was the lowest since December 2010 as falling new orders weighed on sentiment. That said, constructors still anticipate a rise in activity over the next 12 months, amid hopes of improving economic conditions.

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