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Irish construction decline continues

8 Jul 13 Activity in the Irish construction industry continued to fall in June, though the decline in new orders eased markedly.

Lower new work led to further sharp reductions in purchasing activity and employment, but business sentiment improved and was the strongest since January 2007. Close to half of all respondents forecast activity to be higher in 12 months’ time, mainly due to predictions of a return to growth of new orders in coming months.

The Ulster Bank construction purchasing managers’ index (PMI) is a seasonally adjusted index designed to track changes in total construction activity. Figures under 50 indicate a fall. It posted 43.4 in June, up from 42.0 in May but still signalled a sharp monthly fall in activity.

Some respondents indicated that projects had reached completion, with new order levels insufficient to compensate.

Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “The pace of decline did ease slightly last month, as the PMI rose slightly to its highest level since February reflecting a slower rate of contraction in both housing and commercial activity.

“While survey respondents continue to experience very challenging conditions at present, some forward-looking elements of the survey offered some encouragement about future prospects. Notably, the new orders index rose to its highest level since March 2012. The reading of 49.5 in June came very close to the 50 breakeven level, thus tentatively hinting at a possible stabilisation in new business flows. And some optimism surrounding potentially better order levels boosted confidence among respondents, with sentiment regarding the 12-month outlook rising to its highest level since early 2007.”

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All three monitored sectors posted lower activity, but rates of decline varied. The sharpest fall was on civil engineering projects, where the rate of contraction accelerated to the fastest since December 2010. Rates of decline eased elsewhere, with the slowest reduction in activity on residential projects.

Although new business continued to fall in June, the rate of contraction was much slower than seen in the previous month, and only marginal. Panellists generally reported that client demand remained weak, but there were reports of some success in winning tenders.

Further sharp declines in both employment and purchasing activity were recorded, in each case reflecting the completion of existing projects and a lack of new orders. The rate of job cuts actually quickened over the month, and was the fastest in 2013 so far. Meanwhile, purchasing activity has now decreased in each of the past 34 months.

The rate of input cost inflation slowed for the fourth consecutive month in June, and was the slowest in the current 11-month sequence of inflation. While some respondents indicated that oil prices had risen, lower metals costs had reportedly contributed to slower inflation.

Although demand for inputs decreased sharply, suppliers’ delivery times continued to lengthen amid a reluctance on the part of vendors to hold inventories.

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