Recession
Construction activity rises at fastest pace since January 2006
By Simon Barry, Chief Economist, Ulster Bank
Nov 12, 2013 - 10:42:11 AM

Construction activity rises at fastest pace since January 2006
The recovery in the Irish construction sector picked up pace in October. Growth of both activity and new business accelerated from September and firms raised their input buying sharply, although the rate of job creation remained marginal. Meanwhile, cost inflation quickened as material prices increased. The Ulster Bank Construction Purchasing Managers’ Index®  (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – rose to 59.4 in October from 55.7 in September to signal a sharp monthly expansion of activity. Moreover, the rate of growth was the fastest in close to eight years.

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

“The latest results of the Ulster Bank  Construction PMI provide further evidence that a recovery dynamic is beginning to take hold in the Irish construction sector. Overall activity increased for the second consecutive month in October, with the pace of expansion reaching its fastest since January 2006. Accelerating increases were recorded in both Housing and Commercial activity with the rate of expansion in Housing reaching levels last seen almost nine years ago.

“There was also a second consecutive marginal rise in employment reported by survey respondents, suggesting that the improved activity patterns are translating into a stabilisation in staffing levels. Near- term prospects appear to be relatively promising as the New Orders Index posted a fourth consecutive monthly rise, with the rate of increase in new business levels reaching its fastest in seven years. These signs of improvement in the construction sector are very welcome indeed, but are best viewed in the context of the enormous slump in activity which dogged the sector for much of the past six years. Nonetheless, together with the healthy readings of the manufacturing and services PMIs from the past few weeks, the construction PMI points to an encouraging start to the final quarter, and contributes to a sense that the recovery in the wider economy is gaining traction."
 
Strong expansions in housing and commercial sectors
Rates of growth in activity picked up across the housing and commercial sectors, reaching the highest since January 2005 and February 2007 respectively. On the other hand, civil engineering activity continued to fall, although the rate of contraction was relatively modest compared with earlier in the year.

Fastest rise in new orders for seven years
Where activity increased, panellists mainly linked this to improving economic conditions in Ireland. This also helped lead to a rise in new business as enquiry numbers increased and panellists reported greater success in securing contracts. The latest expansion in new orders was substantial, having accelerated for the third consecutive month to the fastest in seven years.
 
Faster increase in purchasing activity
With workloads increasing again, construction firms raised their purchasing activity for the second month running. As with activity and new orders, the rate of growth in input buying quickened from that seen in September. 

Employment growth only marginal
The rate of job creation failed to pick up notably during October, despite a   marked   rise   in   new   work. Employment  rose  only  marginally  for  the  second successive month.
 
Input prices increased for the fourteenth time in the past 15 months. Moreover, the rate of inflation quickened sharply to the strongest in close to a year. Panellists highlighted rising costs for materials including timber. Low stock levels at suppliers was the main reason for a deterioration in vendor performance, according to panellists. Delivery times lengthened for the twenty-eighth consecutive month, but at the weakest pace since April 2012.

Optimism remains strong
Strong optimism regarding future activity was recorded again in October, with sentiment broadly in line with that seen in September. Optimism was largely centred on signs of improving conditions in both the construction sector and the wider economy.

Simon Barry
Chief Economist Republic of Ireland
Ulster Bank
t: 01 6431553
m: 086 3410142
g: 01 6431688
e: simon.barry@ulsterbankcm.com
w: www.ulsterbankcapitalmarkets.com

3rd Floor Dealing Room
Ulster Bank Group Centre
George's Quay, Dublin 2