New orders fuel construction growth

Construction workplace fatalities

A further sharp rise in new business was central to improvements in activity, employment and confidence at Irish construction firms in October. Companies also continued to increase their purchasing activity, while the rate of input cost inflation moderated for the second month in a row. The Ulster Bank Construction Purchasing Managers’ Index (PMI)– a seasonally adjusted index designed to track changes in total construction activity – rose slightly to 56.3 in October from 55.8 in September, thereby signalling an accelerated expansion in activity during the month. Construction output has now increased in each of the past 26 months. Panellists indicated that higher new orders had been the principal reason behind growth of activity.

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

“The pace of activity in the construction sector accelerated slightly in October, according to the latest results of the Ulster Bank Construction PMI. The headline PMI rose from 55.8 in September to 56.3 last month, leaving the index comfortably above the 50 threshold level which indicates expansion and halting a mini-run of three consecutive declines. The pace of activity accelerated in both Housing and Civil Engineering, and though there was a marginal easing of growth in Commercial activity, all three sectors registered expansion for the second month in a row.

“The pace of expansion in new orders and employment eased slightly last month, but in each case the growth rates remain very solid. Both overall activity and new business levels have been rising for well over two years now, and the sustained expansion of activity in the sector continues to drive higher staffing levels among survey respondents. More generally, optimism about future prospects for the sector remains high and strengthened in October, with nearly 60% of respondents expecting a further rise in activity levels over the next twelve months.”

Residential sector leads growth

As had been the case in September, all three monitored construction categories posted rises in activity. The sharpest increase was on housing projects, with the rate of expansion quickening to the fastest since June. A slower, but still marked, increase in commercial activity was seen in October, while the rate of growth in activity on civil engineering projects quickened but remained the slowest of the three categories covered.

Staffing levels rise at marked pace

Increased new orders led companies to take on extra staff again. The rate of job creation remained sharp, despite easing slightly from the previous month. Higher new business also supported improving confidence among constructors. More than 58% of respondents predicted that activity will increase over the coming year, with just 6% pessimistic regarding the 12-month outlook.

Companies raised their purchasing activity in response to increased workloads in October. The rate of growth was solid, albeit the slowest since March. Low stock levels at suppliers meant that delivery times continued to lengthen. However, the latest deterioration in vendor performance was only marginal, and the weakest since April 2012.

The rate of input cost inflation slowed for the second month running in October and was slightly weaker than the series average. That said, a solid rise in input prices was still recorded.

Although construction firms continued to increase their usage of sub-contractors, the rate of growth eased for the fourth successive month to the slowest in seven months. A further solid reduction in sub-contractor availability was recorded, and this contributed to another sharp increase in the rates they charged despite a perceived worsening in the quality of their work.

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