AIB Ireland Construction PMI®: Slight Rise in Activity as New Order Growth Solidifies

Key points:

• New orders expand for second month running
• Business confidence at six-month high
• Pace of job creation only marginal in August

The latest AIB Ireland Construction PMI® data pointed to a second successive monthly increase in total activity as new order growth strengthened and business confidence hit a six-month high. That said, the rise in total activity was centred on the commercial category. A renewed increase in input buying was signalled, but employment growth eased to a 10-month low. Meanwhile, companies faced intensifying supply-chain delays and a sharper rise in input costs.

The headline seasonally adjusted AIB Ireland Construction Total Activity Index remained above the 50.0 no-change mark in August, signalling a second successive monthly rise in total construction activity midway through the third quarter of the year. At 50.7, however, the reading was down from July’s 53.0, and pointed to only a slight expansion in activity during the month.

After all three monitored categories registered increases in activity in July, growth was limited to the commercial sector in August. Here, output rose for the sixth time in the past seven months, albeit modestly. Elsewhere, civil engineering activity was broadly unchanged and housing activity decreased solidly.

Those respondents that saw activity increase in August linked this to efforts to complete projects quickly as well as an improvement in demand. Stronger demand helped firms to be able to secure greater volumes of new orders, the second month running in which this has been the case. Moreover, the rate of expansion quickened to a five-month high.

Higher new orders and good pipelines of projects supported confidence that construction activity will rise over the coming year. Moreover, optimism hit a six-month high in August.

Rising workloads and the start of new projects led constructors to increase their employment and purchasing in August. Input buying rose for the first time in three months, while the pace of job creation eased to a marginal rate that was the slowest in the current 10-month sequence of increasing staffing levels.

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Companies registered a further marked rise in input costs, with oil and metals mentioned in particular as having increased in price during the month. The rate of inflation ticked up from July, but was still much weaker than April’s recent peak.

Suppliers’ delivery times continued to lengthen in August. Moreover, the rate of deterioration in vendor performance was the most pronounced in four months. Panellists reported a lack of stock at suppliers and shortages of couriers.

Finally, constructors increased their usage of sub-contractors for the ninth consecutive month, albeit at a slower pace. Meanwhile, the availability of sub-contractors continued to decline.

Commenting on the survey results, John Fahey, AIB Senior Economist, said, “The AIB Irish Construction PMI survey for August showed that the sector registered a second consecutive month of growth. However, the headline index eased to 50.7 from 53.0 in July, indicating that the pace of growth slowed midway through the third quarter.

“Looking at the sectoral breakdown, the expansion in activity levels was less broad-based than in July. Commercial activity retained its position as the top performer and was the only sector to record growth during the month. The residential sector was unable to maintain its momentum from July, falling back into contraction territory last month. Meanwhile, civil engineering activity levels were broadly unchanged in August.

“Some of the other key metrics in the August survey provided some encouraging signs. The new orders index, which is viewed as a leading indicator, increased for the second month in a row, with the pace of growth accelerating. At the same time, the construction sector continued to record an expansion in staffing levels, with employment numbers rising for a tenth successive month. However, price pressures remained a key challenge for the sector, with the rate of increase in input costs accelerating.

“Meanwhile, construction firms’ level of confidence in the prospect of higher activity levels over the coming 12 months strengthened for a fourth consecutive month in August. The improvement in sentiment was underpinned by rising new orders and a healthy pipeline of new projects.”

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