Ireland’s 2018 start is ‘encouraging’

An “encouraging picture” has been painted for the early part of the year in the Irish construction industry.

The sector posted faster increases in activity, new orders and employment, as well as seeing confidence improve again, the Ulster Bank Construction Purchasing Managers’ Index (PMI) has found.

Meanwhile, it said that input costs had risen to the greatest extent in 11 years.

The Ulster Bank Construction PMI is a seasonally-adjusted index designed to track changes in total construction activity. It rose to 61.4 in January from 58.0 in December.

The bank said the latest reading signalled a substantial monthly increase in total activity, and the fastest since May 2017. Activity has risen continuously since September 2013, with panellists mainly linking the latest expansion to the securing of new contracts.

Simon Barry, chief economist for the Republic of Ireland at Ulster Bank, said, “The latest results of the Ulster Bank Construction PMI survey paint a very encouraging picture of early-year activity trends in Irish construction.

“The headline PMI picked up for the third month in a row, with a highly elevated reading of 61.4 representing an eight-month high. There was a particularly notable acceleration in commercial activity making it the fastest growing sector last month. However, the improvement was broadly-based, with the housing PMI also rising to an eight-month high, consistent with ongoing very rapid activity growth.”

He said that there were also further signs of improvement in civil engineering, which logged a second consecutive month of expansion, with a 55.6 reading marking the best performance for that sub-sector in almost two years.

“Other detail within the report confirms the positive signals from the headline indicator,” said Barry. “Notably, the new orders index picked up again leaving it in line with the robust average pace of increase recorded to date in the recovery.

“And the strength of trends in current and prospective activity continues to underpin solid labour demand, with the employment index rising to a five-month high.”

He said that overall, the January PMI indicated that, like their services and manufacturing counterparts, Irish construction firms had made a strong start to 2018, adding that construction firms were looking to the year ahead with high levels of confidence, with sentiment around future prospects buoyed by expected further improvements in the wider economy, and in the construction industry itself.

Continued recovery

For the second month running, activity rose across all three monitored categories of construction as civil engineering continued its recent recovery. The bank said that in fact, activity on civil engineering projects had increased sharply in January. Steep expansions in activity were recorded again in the housing and commercial sub-sectors, with commercial posting the strongest growth at the start of 2018, it reported.

Confidence among clients regarding economic conditions resulted in further growth of new orders in January, the bank said, and the rate of expansion quickened to a six-month high.

Rising workloads led construction firms to increase their staffing levels again, for the 53^rd consecutive month. The rate of job creation was sharp and the fastest since last August, said Ulster Bank.

It added that in line with the trends in activity, new orders and employment, the rate of expansion in input buying accelerated at the start of the year.

The increase in demand for inputs was said to have put pressure on suppliers. This, combined with a shortage of materials caused a further lengthening of delivery times. The latest deterioration in vendor performance was the sharpest in five months, the PMI survey found.

January data pointed to a sharp and accelerated monthly increase in input costs, with the latest increase the fastest since January 2007. A number of panellists were reported to have mentioned that suppliers had raised their prices, while higher costs for fuel and labour were also reported.

The bank said that business sentiment had strengthened for the second consecutive month.

It said that confidence reflected expected improvements in conditions both in the wider economy and construction industry itself, as well as the prospect of further increases in new contracts.

More than 53% of panellists forecast a rise in activity over the coming year.