Irish construction activity and new business both declined at faster rates in February, according to the latest Ulster Bank Construction Purchasing Managers’ Index (PMI). The decline continues the worsening of operating conditions following stabilisation at the end of 2011.
On the other hand, employment fell at a much weaker pace and the level of optimism was broadly in line with that seen in January.
The Ulster Bank construction PMI is a seasonally adjusted index designed to track changes in total construction activity. It dropped to 45.8 in February, from 46.4 in the previous month – figures below 50 signify decline. The latest decline was marked, and represented a turnaround from the broad stabilisation recorded in December 2011.
Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “The construction sector is experiencing renewed weakness early in 2012 according to the latest Ulster Bank Construction PMI. The February survey results show that the pace of decline in activity accelerated further last month as the PMI fell to its lowest level since last October. Having showed tentative signs of stabilising at the end of last year, Housing activity is once again falling sharply as is activity in civil engineering which remains the weakest of the three sub-sectors, in keeping with the pattern of the past two years. The index of commercial activity also fell in February, dipping back below the expansion-contraction threshold of 50 having recorded a slight increase in activity in January. However, its decline was relatively modest, with the index hovering just below the 50 level at 49.1 last month, leaving the commercial sector as the area showing greatest resilience.”
Constructors continue to express optimism that that they may see some increase in activity levels as they look a year ahead, he said. “However, a second consecutive sub-50 reading on the new orders index means there is not much prospect of the overall sector returning to sustained expansion in the next few months. With available work still very thin on the ground, construction firms remain in job-shedding mode though the pace of decline in employment levels did ease to its slowest pace in over 4½ years.”
The rate of contraction in housing activity quickened sharply in February, and was marked. The worst-performing sector, however, remained civil engineering, where the latest reduction was the fastest since June 2011. Commercial activity also fell in February, but at only a marginal pace.
Respondents indicated that the overall drop in activity was partly reflective of a reduction in enquiries over the month. Anecdotal evidence also suggested that strong competitive pressures had contributed to a reduction in new business. New orders decreased for the second consecutive month, and at a solid pace that was the fastest since June 2011.
Employment decreased again during the month. However, the rate of job cuts was much weaker than that seen in the previous month, and the slowest in more than four-and-a-half years. Where staffing levels fell, reports suggested that this was in line with decreasing workloads.
Purchasing activity decreased at a modest pace that was only slightly faster than that seen in January. Input buying has fallen in each month throughout the past year-and-a-half. Although demand for inputs declined again, suppliers’ delivery times continued to lengthen amid low stock holdings at vendors. That said, the rate of deterioration was the weakest in seven months.
The rate of inflation quickened for the second month running to the fastest since last October, but was still slightly weaker than the long-run series average.
Partly reflecting low levels of activity currently, constructors predict activity to be higher in 12 months’ time. The level of optimism rose to the strongest since May 2011. However, a number of respondents indicated that a continuation of uncertain economic conditions would lead to a fall in activity.
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