Irish construction sector marks one year of continuous growth in August

Following another sharp expansion in August, activity in the Irish construction sector has now increased in each month throughout the past year. Growth was supported by another steep rise in new orders, and companies were strongly optimistic that activity will continue to increase over the coming year.

Meanwhile, the rate of input cost inflation quickened to the sharpest since March 2012. The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – registered at 61.4 in August, down slightly from the reading of 62.6 in July but still signaling a strong increase in activity at construction firms in Ireland.

Total activity has now risen in each of the past 12 months. Growth of new work was reportedly the key factor leading activity to rise.

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

“The August results of the Ulster Bank Construction PMI survey highlight that trends in the Irish construction sector continue to show strong improvement. The headline PMI reading of 61.4 indicates that activity again rose at a rapid rate last month, albeit at a slightly slower pace than in July. The solid improvement continues to be underpinned by particular strength in both the housing and commercial arenas where activity trends are benefiting from substantial increases in new orders.

“In turn, the solid trends in new business are translating into higher staffing levels, with the employment index recording its twelfth consecutive month of expansion. Indeed, the headline PMI index itself has also now been in expansion territory for the past twelve months as the sector continues to pull away from the deep trough reached following the 2007-13 downturn. Moreover, construction firms are confident that the sector’s recovery will remain on track in the coming year. Sentiment rose for the third month in a row in August, taking it to a near-record high, as respondents anticipate that further improvements in both the construction sector itself and the broader economy will result in further activity gains in the coming twelve months.”

Strong growth in housing and commercial activity

Construction firms recorded sharp increases in activity on both housing and commercial projects during the month, despite the rates of expansion easing slightly. In contrast, civil engineering activity continued to fall, albeit at only a modest pace.

New orders rise sharply

Improving conditions in the construction sector led to an increase in new work during August. New business has now risen in each of the past 14 months, with the rate of expansion remaining substantial.

Twelfth successive increase in employment

Rising workloads led companies to take on extra staff, with employment now having increased in each month throughout the past year. Although slowing from July, the rate of job creation remained marked.

The availability of sub-contractors in the Irish construction sector declined to the greatest extent since September 2000 as sub-contractor usage increased solidly again during August.

A further rise in new orders led companies to increase their purchasing activity again. Input buying has risen in each of the past six months, and the latest expansion was sharp.

Vendor lead times continued to lengthen as supplier capacity came under pressure, although the rate of deterioration eased for the second month running to the weakest since March. On the cost front, a number of respondents indicated that suppliers had used increased demand to raise their charges. As a result, input prices rose at the fastest pace since March 2012.

Near-record sentiment recorded

Sentiment among Irish construction firms reached a near-record high in August as optimism improved for the third month running. Panellists forecast that ongoing improvements in economic conditions in Ireland and within the construction sector itself would help lead to higher activity.