Sharp slump in construction activity
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A sharp slowdown in commercial activity saw Ireland's construction industry contract again, falling to its lowest level recorded this year.
Housing construction also slowed again while construction material inflation picked up again for the second successive month according to the latest construction purchasing managers’ index from BNP Paribas Real Estate.
An overall weakness in demand drove sharper downturns in activity and new orders in August. Purchasing activity was subsequently scaled back and the rate of employment growth eased over the course of the month.
The headline seasonally adjusted Construction Activity Index registered below the crucial 50.0 mark during August to signal a back-to-back reduction in activity in the Irish construction sector. Posting 44.9, down from 45.6 in July, the latest headline figure was the most pronounced in the year so far. The drop in activity was broad-based across commercial, housing, and civil. The reduction in commercial activity was the sharpest in almost two-and-a-half years while housing activity fell at a solid rate.
John McCartney, Director & Head of Research at BNP Paribas said the most notable new trend is the very pronounced decline in commercial building activity in July and August, bucking the trend of consistent expansion over the first half of 2023.
"This is a welcome development as it limits the potential for oversupply in areas of commercial property, such as offices, where vacancy rates have been rising," he said.
"A second notable is the re-acceleration of input cost inflation in July and August after nearly two years of receding cost pressures. This jars somewhat with the latest CSO data on building materials and labour costs, but could be an early sign that re-emerging energy price increases since June are beginning to impact the sector." Just under 31% of the survey respondents saw their input costs rise over the course of the month, against just 4% who noted a reduction.
According to the 150 construction companies surveyed, activity levels throughout the industry remained constrained by demand weakness. New orders reduced for the second straight month and to the greatest extent since December last year. Panel members typically noted deteriorating demand conditions, linked to interest rate hikes and stubborn inflationary pressures.
Companies were subsequently more cautious with their approach to hiring. While still adding to their workforce numbers in August, the rate of job creation was only marginal overall and the least pronounced in four months.
Construction firms have responded to subdued order books by scaling back their own buying activity for a third consecutive month in August.
Despite the reduction in overall activity, construction firms continued to express optimism in the year-ahead outlook for activity during August. The main factors underpinning the positive assessment for the future included hopes for an improvement in market demand, the launching of new product lines, and the commencement of new projects.
"Irish building firms appear optimistic about the future," McCartney said. "Surveyed firms took on additional staff for the eighth successive month in August and 88% of panellists expected to be as busy or busier in 12 months’ time."