Simon Barry, Ulster Bank
Construction activity rises at fastest pace in seven months
Construction output has increased continuously since September 2013
The Irish construction sector recorded a strong start to the final quarter of the year, with activity, new orders and employment all increasing at faster rates in October. Companies also raised their purchasing activity, leading to longer suppliers’ delivery times and an increase in input costs. Meanwhile, confidence regarding future output also improved from that seen in September. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) &ndash (Ulster Bank PMI); a seasonally adjusted index designed to track changes in total construction activity – increased for the second successive month in October to 62.3, up from 58.7 in September. This represented a sharp monthly rise in total construction activity, and the fastest in seven months. Construction output has increased continuously since September 2013.
“Firms continue to report a strengthening in client demand amid a general improvement in economic conditions as an important contributor to the on-going uplift in new business volumes”
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 survey show another sharp increase in Irish construction activity, with the pace of expansion accelerating to a seven-month high in October. Importantly, construction firms are continuing to benefit from robust increases in new business levels, with the New Orders index rising to its highest level since February following a fifth consecutive monthly acceleration in October. Firms continue to report a strengthening in client demand amid a general improvement in economic conditions as an important contributor to the on-going uplift in new business volumes. In turn, the healthy expansion of new orders continues to underpin increased demand for construction workers. The Employment index rose sharply last month, with the pace of hiring accelerating to its fastest in eight months as almost one-third of firms noted a rise in employment.
“Overall, the October results paint an encouraging picture of recent developments at Irish construction firms. Solid readings across the headline, new orders and employment indicators highlight that momentum behind the sector’s recovery continues to look strong. Indeed, the headline PMI index reading of 62.3 for October marks the second month in a row of construction outperformance relative to both the services and manufacturing equivalents (which stand at 54.6 and 52.1 respectively), with the mainly domestic-facing construction sector less directly exposed to adverse Brexit impacts than more heavily trade-dependent areas of the economy.”
Commercial category leads growth again
For the sixth successive month, the commercial construction category was the best performer in October as the rate of expansion quickened to a three-month high. Activity on housing projects also rose at a sharp and accelerated pace during the month. Meanwhile, civil engineering activity was unchanged, after having risen in September.
The rate of new order growth was substantial, having quickened for the fifth consecutive month to the strongest since February.
New business increases sharply
Anecdotal evidence suggested that a general improvement in economic conditions and rising new orders had contributed to the expansion of total activity. The rate of new order growth was substantial, having quickened for the fifth consecutive month to the strongest since February.
Two-thirds of respondents predicted an increase in activity over the next 12 months
Rate of job creation accelerates
Growth of new orders encouraged construction firms to increase their staffing levels during October. Moreover, the rate of job creation was considerable and the fastest in eight months.
The rise in new business in October was also a key factor behind an expansion of purchasing activity by construction firms. Moreover, the rate of growth was among the sharpest since the survey began in mid-2000.
Higher demand for inputs led suppliers to increase their charges, and also resulted in delivery delays. The rise in input costs faced by construction firms during October was sharp and the fastest since August 2015. Meanwhile, suppliers’ delivery times lengthened at a much more marked pace than was recorded in September.
Business sentiment ticked up in October and remained strongly positive as approximately two-thirds of respondents predicted an increase in activity over the next 12 months. Among the factors supporting optimism were predictions of improving market conditions and a good pipeline of work.