Record rise in Irish construction activity
Irish construction activity increased at the fastest pace since the survey began in June 2000 during February, as the rate of expansion in new business accelerated sharply. Constructors responded by increasing both their purchasing activity and employment at near-record rates. With further improvements in economic conditions predicted over the coming year, business sentiment improved to a three-month high. The Ulster Bank Construction Purchasing Managers’ Index – a seasonally adjusted index designed to track changes in total construction activity – rose to 68.8 in February from 63.6 in the previous month. This was the highest reading in the history of the survey, surpassing the previous peak set in November 2004. Construction activity has now increased on a monthly basis throughout the past two-and-a-half years.
Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:
“The pace of recovery in Irish construction accelerated significantly in February according to the latest results of the Ulster Bank Construction PMI survey. In fact, the overall PMI index rose to a record high last month, pointing to the fastest pace of monthly expansion in construction since the survey was introduced in June 2000. A marked acceleration in activity was experienced across the sector: record growth rates were also recorded in Housing and Commercial activity, while the increase in Civil Engineering was the strongest since August 2006.
“Record rates of growth need to be seen in the context of what are still extremely low levels of construction activity. This point was borne out by last week’s national accounts figures which showed that even after three years of recovery at very solid growth rates, construction output is still about 50% lower than pre-crisis peak levels. Thus, following the collapse in activity during the financial crisis, the process of returning to more normal levels of activity will likely require sustained growth over many years. Nevertheless, the extremely positive results from the latest PMI surveys suggest that there has been a major pick-up in recovery momentum early in 2016 leaving the sector on track for another year of meaningful progress in its journey back to more normal activity levels.”
Record growth in housing and commercial sectors
Record growth rates were also seen with regards to housing activity and commercial activity during February, with the sharper expansion seen for residential projects. Meanwhile, the increase in civil engineering activity was much faster than seen in January, and the strongest since August 2006.
New order growth accelerates
A rise in new orders was one of the factors leading activity to increase during the month. New business expanded at a considerable pace, and one that was among the fastest signalled by the survey so far.
Further job creation recorded
Construction firms responded to higher new orders by increasing staffing levels. The rate of job creation picked up for the second month in a row and was the fastest since October 2014, as one-quarter of all respondents raised employment. Jobs growth has now been registered in each of the past 30 months.
A marked acceleration in the rate of growth in purchasing activity was recorded in February, with input buying raised at the fastest pace since November 2004.
The usage of sub-contractors continued to increase sharply during February, despite the rate of expansion slowing slightly from the start of the year. Companies recorded a sharp fall in the availability of sub-contractors, with the rate of decline the fastest since July 2015. Meanwhile, rates charged by sub-contractors continued to rise at a marked rate, albeit the weakest in ten months.
Rising demand for inputs and stock shortages at suppliers contributed to longer delivery times in February. Furthermore, the rate of deterioration was the greatest since October 2014.
The rate of input cost inflation was largely unchanged over the month, remaining sharp amid higher supplier charges.
Sentiment among Irish construction firms improved to the highest in three months during February, with around 65% of respondents predicting activity to be higher in 12 months’ time. According to respondents, optimism mainly reflected forecasts of strengthening economic conditions.