'Worst is over' in building industry

THE RATE of decline in the building industry accelerated last month, but one economist says the figures indicate that the worst may be over.

The Ulster Bank Purchasing Managers’ Index (PMI) for the industry dropped to 31.1 in May from 32.9 in April.

The PMI uses a reading of 50 as its benchmark; any rating below this indicates a fall on the previous month, while any mark above this figure indicates growth.

Ulster Bank said yesterday that last month’s result shows the rate of decline in the building business has accelerated. The bank’s statement added that activity in the sector has decreased throughout the past two years, reflecting weakness in the wider Irish economy.

Lynsey Clemenger, economist at Ulster Bank, said the results were not surprising, given that the rate of decline slowed in April.

“The rate of decline in construction activity slowed notably in April, so some payback was not all that surprising in May,” he said.

“Despite the deterioration last month, all three components remain off their low points, and we maintain our view that the worst has passed, even though activity continues to contract.

“Looking at three-month moving averages, which provide a better indication of the underlying trends, we see the slowest pace of contraction in housing since October 2007 and in commercial since October 2008. However, the decline in civil activity accelerated from last month.”

The industry has been in decline for two years, underperforming its European peers last year.

The bank also released figures yesterday showing the decline has passed its worst in Northern Ireland, although it warned that conditions in the overall Irish economy would continue to “drag” on the region. The banks’ PMI for the region showed the pace of decline had slowed, but the bank warned that the continuing recession in the Republic would slow recovery in the region.

“While Northern Ireland’s contraction in the private sector activity has now continued into its 18th month, the latest survey reported a further improvement in all indicators,” Ulster Bank economist Richard Ramsey said yesterday.

Robert Gardiner, analyst at stockbrokers Davy, said at the weekend that a trading statement from leading British house building firm Bellway indicated that the recession may have bottomed out there. Mr Gardiner pointed out that British builders have spent the last year cutting costs and debts and focusing on ways of generating cash.

“Bellway’s interim management statement on June 5th marked a significant change in this strategy,” he said. “The company stated that the focus of the business is changing from primarily one of simple debt reduction to selectively increasing production in certain parts of the country where demand is strongest.

“The CEO later admitted that the group is taking something of a punt, but that is clearly based on recent sales and the group’s assertion that the market is running close to bottom.”

Mr Gardiner said the company is looking for sites, and the fact that Bellway and its peers Berkeley and Bovis are starting to build again merits close attention.