BNP Paribas Real Estate Ireland Construction PMI®: New Orders Fall for First Time in Six Months

Key points:

• Renewed decline in activity as demand falters
• Employment continues to rise solidly
• Suppliers’ delivery times shorten for first time in over 12 years

After having returned to growth in June, construction activity in Ireland saw a renewed decline in July amid a first reduction in new orders since January. More positively, firms continued to take on extra staff and remained optimistic that activity will expand over the coming year.

The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index fell to 45.6 in July from 50.4 in June, dropping back below the 50.0 no-change mark to signal a renewed fall in total activity in the sector. Output has now decreased in nine of the past ten survey periods, and the latest reduction was the most pronounced in the year-to-date. Declines in activity were broad-based across the three monitored categories of construction as commercial posted a first fall in six months.

Those respondents that saw a drop in activity at the start of the third quarter often linked this to a renewed weakening of customer demand. This anecdotal evidence was consistent with the latest data on new orders, which signalled a first reduction in six months. Subdued customer confidence and associated delays in the approval of projects were among the factors leading to the fall in new business, which was solid overall. Despite the drop in workloads in July, construction firms continued to expand their staffing levels. Employment increased for the seventh consecutive month. Moreover, the rate of job creation was solid and the fastest since February.

Continued hiring was consistent with confidence among construction firms that activity will expand over the coming year. Sentiment picked up slightly from June, but was below the series average. Firms were optimistic that demand would show signs of improvement over the next 12 months. Approximately 30% of respondents were optimistic in the outlook for activity.

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In contrast to the increase in employment, companies scaled back their purchasing activity in July. The fall was the second in as many months and most pronounced since January.

The drop in demand for inputs coincided with a first shortening of suppliers’ delivery times in just over 12 years amid further evidence of supply chains returning to normal.

The rate of input cost inflation picked up in July, after having slowed to a 34-month low in June. The latest increase was still much softer than seen during 2021 and 2022, however. Around 23% of respondents saw their input costs rise at the start of the third quarter, against 3% that posted a fall.

The usage of subcontractors by construction firms increased for the sixth successive month, albeit at only a slight pace that was weaker than that seen in the previous survey period. Meanwhile, subcontractor availability declined to the least extent since February.

Commenting on the latest survey results, John McCartney, Director & Head of Research at BNP Paribas Real Estate Ireland, said, “The July PMI was a mixed bag. Last year’s construction slowdown gave way to a progressively less severe contraction through the opening half of 2023, culminating in a return to growth in June. In this context, and given the continued pick-up in housing starts, the back-slide into contraction in July was unexpected. The acceleration in input cost inflation also bucked a slowing trend that has been in place since April 2022, and is at odds with the latest Wholesale Price Index data. It remains to be seen if the more timely PMI is picking-up early signs of renewed inflationary pressures or whether this is just a blip. On a positive note, construction firms reported increased employment for the seventh successive month, and for the tenth time in the last 12 months. This demonstrates that building firms are still able to recruit staff despite the tight labour market, and suggests an underlying confidence about the future. This confidence was replicated in the future expectations indicator which remains positive, and which shows a slight increase in sector optimism between June and July.”

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