Fastest rise in new business for a decade

The recovery in the Irish construction sector gathered pace in October, with near-record rises in activity, new orders and employment all seen during the month. Companies remained optimistic that activity will continue to expand over the coming year. On the cost front, a further marked rise in input prices was registered.  The  Ulster  Bank  Construction  Purchasing  Managers’  Index®   (PMI®)  –  a  seasonally adjusted index designed to track changes in total construction activity – rose to 64.9 in October from 61.5 in the previous month. The reading was the second-highest since the survey began in June 2000, with November 2004 the only month to have seen a faster expansion. Increased new orders and improving economic conditions had been the main factors leading activity to rise.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:

“The pace of growth in Irish construction accelerated markedly in October, according to the results of the latest Ulster Bank Construction PMI survey. The headline PMI index rose again last month, reaching the second highest level in the survey’s fourteen year history - the latest sign that the recovery in the sector is continuing to strengthen, albeit from very low levels of activity. Both housing and commercial activity registered another month of particularly rapid rises, with the latter posting its strongest gain in over nine years. And a return to marginally positive growth in civil engineering meant that survey respondents are reporting a broadening, as well as a strengthening,  of  the  sector’s recovery dynamic.

“Firms remained upbeat about prospects for the future in the October survey.  In the near-term, activity in the months ahead will be underpinned by buoyant flows of new business, with the new orders index reaching a 10-year high last month. The sustained increases in both activity and orders continue to promote more favourable trends in staffing levels, with the employment index also hitting a 10 -year high in the latest survey as the pace of hiring increased further. Moreover, confidence about the construction outlook over the coming twelve months also remains elevated, with sentiment close to record highs again last month, partly reflecting optimism surrounding the wider Irish economy.”

Civil engineering activity increases
For the first time since October 2006, each of the three monitored sectors posted rises in construction activity. This was due to a return to growth of civil engineering activity, albeit only a marginal increase. Both the housing and commercial sectors posted further substantial expansions of activity during October. The rise in commercial activity was the strongest since September 2005.

Steep growth of new business
The rate of expansion in new orders accelerated for the second month running and was the strongest since October 2004. Panellists reported ongoing increases in enquiry numbers.

Near-record rise in employment
As was the case with activity and new orders, the rise in employment in October was one of the sharpest seen in the history of the survey. Companies raised staffing levels in line with higher workloads. Around 29% of respondents increased employment during the month.

Sub-contractor usage rose for the eighth consecutive month, and at a solid pace that was sharper than that seen in September. Meanwhile, the availability of sub- contractors continued to decline sharply. Panellists partly linked this deterioration to a lengthening of suppliers’ delivery times. Lead times lengthened substantially, and to a similar extent as seen in the previous month.

The quality of work carried out by sub-contractors was deemed to have deteriorated slightly, but their rates charged increased at a sharp pace that was only slightly weaker than that registered in September.

Although construction firms raised their purchasing activity markedly again in October, the pace of expansion eased to the slowest in four months. A further solid increase in input prices was recorded, although the rate of inflation eased slightly for the second successive month and was the weakest since June.

Sentiment remains elevated
Optimism surrounding the wider Irish economy, as well as the construction sector itself, led confidence among firms to remain elevated in October. Sentiment was again at a near-record level.

Simon Barry
Chief Economist Republic of Ireland
Ulster Bank
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