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Irish construction records further sharp fall

12 Nov 12 Another sharp fall in Irish construction activity was recorded during October as new orders declined further.

Companies reacted accordingly, lowering purchasing activity, employment and the use of sub-contractors.

Meanwhile, business sentiment deteriorated, and was the lowest in nearly two years.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity in the Republic of Ireland – posted 42.6 in October, up from 41.9 in the previous month. Although the rate of contraction in activity slowed to the weakest in five months, it was still marked.

Respondents highlighted a lack of confidence within the sector. Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, noted that: “The latest reading of the Ulster Bank Construction Purchasing Managers’ Index highlights that the Irish construction sector continues to experience recessionary conditions. A slight increase in the overall PMI to a five month high points to a slight easing in the pace of contraction in activity last month.

However, the rate of decline remained sharp last month, with the index at 42.6 still way lower than the expansion threshold of 50. Furthermore, the latest survey results confirm that widespread weakness remains a feature of the Irish construction landscape, with large-scale declines still evident across housing, commercial and, especially, civil engineering sub-sectors.

“New orders continued to decline in October so activity and employment trends are not likely to show much improvement in the near-term. Adding to the woes of the sector, firms also reported rising input costs for the third consecutive month reflecting higher energy and fuel costs as well as some upward pressure on import costs from recent euro weakness. A paucity of new business and rising cost pressures looks to be impacting on confidence among respondents as they look ahead, with sentiment falling to its lowest level in two years last month.”

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All three monitored sub-sectors posted falling activity again in October, led by civil engineering. The reduction in activity on civil engineering projects was substantial, and little-changed from September. The slowest decrease in activity was on commercial projects, although the rate of decline accelerated. Meanwhile, the pace of reduction in housing activity slowed over the month.

New business declined for the tenth successive month in October. Respondents linked the latest reduction to strong competitive pressures. The pace of reduction was sharp, albeit the slowest in three months.

With workloads declining, construction firms lowered their staffing levels in October. The rate of job cuts was considerable as close to one-in-five respondents reduced employment.

In line with the decrease in new work, firms reduced their input buying during October, and at a faster pace. Purchasing activity has now fallen in each of the past 26 months. In spite of a reduction in demand for inputs, suppliers’ delivery times lengthened again over the month, largely reflective of low stock levels at vendors.

A third successive rise in input prices at Irish construction firms was recorded during October. Furthermore, the rate of inflation quickened slightly and was sharper than the series average. Higher energy and fuel costs were mentioned by respondents.

A drop in sentiment was signalled in October, with the level of optimism with regards to the 12-month outlook for activity the lowest in close to two years. A rise in activity was still forecast on balance, with firms expecting overseas business to increase. However, a number of respondents predicted that demand would continue to fall over the coming year.

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