Construction in Ireland: Construction Activity Continues to Expand Quickly at the End of the First Quarter

At 55.9 in March, down from 60.5 in February the Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – signalled a softer expansion of Irish construction activity.   That said, the rate ……

….. of activity growth was sharp and faster than the long-run series average.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, said, “Irish construction firms continue to experience rapid growth in their activity levels, according to the latest results of the Ulster Bank Construction PMI survey.   A decline in the headline PMI index, from 60.5 to 55.9, indicates that the pace of expansion did ease back in March.   However, this follows a very strong February performance and the still-robust level of the PMI signals that Irish construction continues to expand at a solid rate.   Mirroring the pattern of the headline PMI, the sectoral sub-indices also painted a picture of moderating growth in March, though the Housing and Commercial indices both remain at levels consistent with ongoing solid activity growth (particularly so in the case of Housing which was the fastest-growing category for a 3rd month in a row).

“Encouragingly, respondents reported a marked pick-up in the pace of job creation, with the employment index rising to a very elevated reading of 59.6 in March, matching a 9-month high.   The demand for construction workers continues to be underpinned by new business which continued to rise solidly in March, though at a slightly slower pace than the very rapid rate recorded in February.   Furthermore, firms themselves remain optimistic about the coming year, with 43% of respondents anticipating higher output levels over the year ahead, with expectations of stronger customer demand cited as an important source of support.   However, sentiment about the sector’s prospects did moderate slightly in March.   This was amid reports from respondents that Brexit risks and uncertainties are weighing on perceptions of the construction outlook, albeit that the March PMI survey results indicate that Construction continues to outperform both Manufacturing and Services where Brexit risks are more pronounced.”

Residential sector leads growth in March
For the third month in a row, the housing sub-category recorded the fastest rise in activity of the three monitored sub-sectors in March.   Commercial activity also increased solidly over the month, but growth eased notably from February.   Meanwhile, civil engineering activity declined for the seventh consecutive month and at the fastest pace since November 2018.

Latest Construction PMI® readings:

(Index readings above 50 signal an increase in activity on the previous month and readings below 50 signal a decrease.   All indices given above and displayed in the charts are seasonally adjusted.   Sources: IHS Markit, Ulster Bank.)

New orders continue to expand sharply
New order growth was sharp in March, despite easing slightly from February.   Panellists commented that they faced solid demand conditions for construction projects.   New business inflows among Irish construction firms have now increased in each of the past 69 months.

Employment growth fastest since July 2018
In contrast to the slower rise in new business, employment growth in the Irish construction industry quickened to an eight-month high.   The rate of job creation was steep amid reports that extra staff had been hired in order to keep up with customer demand.

March marked the sixty-first consecutive month of rising input buying among Irish construction companies.   The pace at which purchasing activity increased was marked but eased slightly from February.

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A further lengthening of suppliers’ delivery times was noted.   The latest deterioration in vendor performance was sharp and the most marked in three months.   Panellists indicated that greater demand for inputs was the main factor behind longer lead times.

Input price inflation quickened to a six-month high during March, and was much faster than the series average.   The pace of increase was sharp, amid reports of greater raw material costs (notably for steel and insulation).

Finally, business confidence among Irish construction companies remained strongly positive in March.   Exactly 43% of panellists predict a rise in activity over the coming year, with optimism remaining above the series average.   This was despite the degree of confidence slipping to a 68-month low, amid continued Brexit uncertainty.

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