Construction in Ireland: Construction Activity Growth Eases to Four-Month Low in May

At 54.9 in May, down from 56.6 in April, the Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – signalled the slowest expansion of Irish construction activity for four months.   That said, the latest increase was ……

….. marked and much faster than the long-run series average.   Irish construction activity has increased on a monthly basis since September 2013.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted, “Irish construction firms continued to experience solid, though slower, growth in May according to the latest results of the Ulster Bank Construction PMI survey.   The headline PMI eased to a 4-month low last month, but at 54.9 it remains well above the 50 breakeven level and indicates that firms continue to report solid gains in activity.   Very encouragingly, the residential sector remains a particular bright spot with Housing activity continuing to expand sharply last month.   Commercial activity also very much remains in expansion mode, but the Commercial PMI has now fallen for three months in a row, with the May reading marking the slowest pace of growth in nearly six years.

“New business and employment levels continued to rise at healthy rates in May, albeit in line with overall trends, both indices eased last month.   This was particularly evident in the case of employment, with the rate of job creation dropping to its slowest pace in over four years.   However, this is best seen as a retreat from very elevated readings in recent months.   Survey respondents remain optimistic about the sector’s prospects over the year ahead, with expectations of stronger customer demand cited as an important source of support.”

Housing growth fastest of all sectors
The housing sub-category recorded the fastest rise in activity of the three monitored sub-sectors for the fifth month running during May.   Commercial activity also increased, albeit at the slowest pace since August 2013.   Meanwhile, civil engineering activity declined for the ninth consecutive month, with the rate of contraction quickening slightly from April.

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 growth at five-month low
Anecdotal evidence from panellists attributed activity growth to an upturn in new orders.   Despite expanding at the slowest pace since December 2018, the rise in new business was the seventy-first in as many months.   Firms indicated that increased market activity and the commencement of new projects were the principal factors behind the expansion in new work.

Business confidence highest in three months
Employment across the Irish construction sector increased for the sixty-ninth successive month during May.   Despite being solid, the rate of job creation eased from April to the slowest since March 2015.   The expansion in workforce numbers was attributed to ongoing increase in construction activity and expectations of higher new business later this year.

Mirroring the trend for overall construction output, purchasing activity increased at a slower pace during May, one that was the weakest in four months.   Irish construction firms have now scaled up their input buying on a monthly basis since March 2014.

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Vendor performance, meanwhile, deteriorated in May and at the fastest pace since the end of 2018.   Panellists indicated that stock issues among suppliers contributed to longer lead times.

On the price front, the rate of input cost inflation eased in May to the slowest since September 2016.   Still the rise was sharp, with materials such as steel, insulation and paint reported as having increased in price since April.

Looking ahead, optimism among Irish construction firms picked up to a three-month high during May, with exactly 39% of panellists expecting activity to increase over the coming year.   Positive sentiment was linked to expectations of stronger demand conditions and greater access to skilled labour and financing.

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