The latest Ulster Bank Construction PMI has shown that Irish construction activity declined again in June but at the weakest rate in almost three years

This was indicated by a marked easing in the pace of decline in activity, while new orders, employment and purchasing activity all fell at slower rates

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity – rose to 44.9 in June, from 40.0 in the previous month. Although the reading still signalled a marked contraction in activity, it was the slowest since July 2007. Respondents indicated that lower activity mainly reflected reduced new business.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, said that: “The latest reading of the Ulster Bank PMI shows that construction activity fell again in June, as it has done for 37 months now. However, on a less negative note, the index did jump by almost 5 points last month – the largest increase in a year – indicating that the pace of decline is clearly easing back. Indeed, having hit a record low at the beginning of 2009, the overall PMI index is now at its highest level since July 2007 pointing to the slowest pace of contraction in almost three years. Also, the June survey confirmed that optimism about the future within the sector remains upbeat, with the expectations index above its historic average for the third month in a row.

“The rise in the June reading was reflective of corresponding increases in the sub-indices for Housing and Commercial. While activity continues to decline in both areas, the latest trends are moving in the right direction, with the pace of decline at multi-year lows in each case. The same cannot be said of the June reading of the Civil Engineering index which bucked the more positive trends elsewhere in the report by showing a decline last month – a reflection perhaps of the sharp pull-back in exchequer capital spending.”

Substantial reduction in civil engineering activity
Each of the three sectors monitored by the survey posted a decline in activity in June. The rate of contraction in the civil engineering category was clearly the steepest overall, and the fastest in three months. Although remaining sharp, the respective rates of reduction in the housing and commercial sectors both eased markedly since May.

Weakest fall in new orders since August 2007
Although new business decreased for the 39th consecutive month in June, the rate of contraction was only modest and the slowest since August 2007. Anecdotal evidence suggested that intense competition still made new business difficult to secure. Employment continued to decrease sharply.

As workloads declined again in June, construction firms lowered their staffing levels accordingly. Employment has now fallen in each of the past 38 months. The latest reduction was substantial, despite being the slowest since February 2008.

Input buying decreased markedly in June, as firms adapted to reduced activity requirements. However, the rate of decline was much slower than seen in the previous month, and the weakest since May 2007. Falling demand for inputs led to declining workloads at suppliers in June. Delivery times shortened as a result, but only marginally due to capacity reductions at vendors. The latest improvement was the slowest in three years.
Despite rising for the second month running in June, input cost inflation remained only slight, and much weaker than the long-run series average. The relative weakness of the euro had exacerbated rising raw material costs during the month.

Sentiment remained elevated in June. Irish constructors remained strongly optimistic regarding the prospects for future activity in June. Respondents anticipate an increase in new business over the coming year as wider economic conditions improve.