Construction contracted at record rate in June, figures show

THE CONSTRUCTION sector contracted at a record rate during June, according to the latest figures from the Ulster Bank purchasing managers' index (pmi).

The index has been measuring the sector since mid-2000. The 160-plus firms consulted displayed the strongest degree of negative sentiment in almost five years, with approximately 39 per cent of those surveyed saying they anticipated business would be worse rather than better in a year's time.

"The June construction pmi makes grim reading," said Pat McArdle, chief economist with Ulster Bank. He noted that "the wheel has come full circle" with construction firms now citing fears about the economy generally when explaining their negative sentiment. Some also mentioned the difficulty in getting credit as being among their reasons for pessimism.

"Overall activity, new orders and employment all recorded record lows. Of the main components, housing contracted at a stronger rate, commercial activity registered a new low and civil engineering also contracted.

"The recently released preliminary Central Statistics Office national accounts data surprised in that they revealed a small decline in combined civil and commercial activity in the first quarter. This was contrary to the perceived wisdom that these sectors were still booming. The pmi readings for April to June point to an even bigger contraction in the second quarter."

The index recorded 29.4 for construction activity in June. Any figure below 50 indicates a reduction, while a figure above 50 indicates an increase. The figure for May was 33.9.

For housing, the figure for June was 24.8, down from 28.1 in May. Comparable figures for commercial and civil engineering activity respectively were 30.6 (down from 37.3) and 32.7 (down from 36.1).

New order volumes contracted at a survey record pace in June as over half of the firms surveyed noted a decline since the previous month. Panellists commented on a general deterioration in demand conditions, which some linked to difficulties in obtaining credit.

The rapid fall in new work contributed to a similar decline in Irish construction sector employment in June. The rate of contraction of staffing levels accelerated for the fourth month running and was a new survey record.

Employee numbers have fallen in each month since May 2007.

Input prices rose solidly in June as a number of firms mentioned rising fuel and transport costs.

The rate of cost inflation remained well below the average for the current period of rising costs, despite accelerating on May's 55-month low.

Rising costs and falling new orders contributed to the gloomy outlook of firms.