Construction industry activity rises sharply in July

There was a sharp rise in business activity in the construction industry in July, according to the Ulster Bank construction purchasing managers’ index (PMI). The key index designed to track overall activity rose to 61.0, from 59.7 in June, signalling strong growth. Total activity has now risen in each of the last 35 months.

The PMI survey shows confidence remains strong, with 58 per cent expecting expansion to continue over the next year and just 9 per cent expecting a fall.

While this was slightly lower than the previous month, it suggests the domestically focused construction sector sees little immediate danger from the Brexit vote. Other survey indications – in manufacturing and consumer sentiment – have indicated a more significant impact from the Brexit referendum.

Extra staff

Employment continues to grow in the construction sector, the survey suggests, with rising workloads encouraged companies to take on extra staff and increase their purchasing activity.

The results showed "the pace of expansion accelerating to a four-month high in July", said Simon Barry, Ulster Bank's chief economist in the Republic.

“Underpinning the further uplift in activity last month was a further significant increase in new business, with the new-orders index also rising to its highest level since March.”

Commercial construction

The strongest performing sector, according to the survey, was commercial construction, which grew at its fastest since February. Housing activity also continued to rise at a sharp pace.

Housebuilding collapsed during the bust and a key concern has been building enough houses to meet demand. Civil engineering activity continues to expand, but some way slower than the other two main subsectors.

“The July survey results offer the first glimpse into Irish construction trends following the UK referendum,” said Mr Barry, and offers some reassurance that the sector’s recovery is maintaining a solid momentum.

Brexit-related risks

However, he said uncertainty remained high about the extent of the possible adverse impact on the Irish economy from Brexit, even if the primarily domestic-focused construction sector is not in the line of fire to the same extent as the more export-oriented manufacturing sector “where recent trends have clearly deteriorated as Brexit effects have begun to take hold”.

According to the PMI survey, the increase in total activity was mainly due to higher new orders. New business expanded at a sharp and accelerated rate during the month, extending the sequence of growth which began in July 2013.

Although the use of subcontractors continued to rise in July, the rate of expansion slowed sharply and was only marginal. Subcontractor availability continued to decline markedly, leading to a further rise in the rates they charged despite perceptions in the survey of a decline in their quality of work.