The decline in the property sector is not a media-created phenomenon, despite what those accusing us of talking down the economy might otherwise suggest.
The slowdown in the sector which drove the Celtic Tiger to such heady heights has firmly taken grip, as evidenced by the latest Ulster Bank Construction Purchasing Manager’s Index (PMI).
The survey recorded a new low during the month of May, illustrating what the bank described as a “substantial deterioration in construction sector performance”. In fact, during each month of the past year, the PMI has contracted.
“While the decline in housing has levelled off in recent months, other construction continues to weaken, dragging down the overall index,” according to Ulster Bank Chief Economist Pat McArdle.
The national PMI dropped from 34.3 in April to 33.9 last month. Index readings above 50 signal an increase in activity in the previous month while a reading below 50 indicates the opposite.
“Both commercial and civil activity recorded significant declines, albeit that the latter did bounce slightly in May. We maintain the view that while housing will remain in contraction for some time, any significant worsening is unlikely.
“Last week’s QNHS figures for the first quarter of 2008 confirmed the fall-off in construction employment as signalled by the PMI employment index some months ago. This index fell to a fresh low in May, as employers continued to lay-off workers in response to the lack of new business.
“The record low in employment mirrors weak new orders, indicating a poor outlook for construction activity in coming months. This is reflected in the sentiment of constructors, with almost a third of those surveyed of the view that activity over the next year will be even weaker.”
The index revealed several other interesting findings:
- Lower activity was attributed by constructors largely to reduced new order volumes in May, which were in turn linked to deteriorating domestic demand conditions. Data pointed to a 14th successive monthly fall in new orders, while the rate of decline accelerated for the third month in a row – a survey record.
- During May, employment in the construction sector declined at a “substantial pace”. Anecdotal evidence gathered by the bank suggested that “the record fall in staffing levels reflected declining new order volumes”. Since May 2007, employee numbers have fallen every month.
- Prices paid for inputs actually rose in May, but at “only a slight pace. Higher fuel prices, currently showing no sign of abating led to increased costs for many firms, but “competition amongst suppliers led a number of constructors to record a reduction in input prices”.
- Last month, “input buying at constructors declined rapidly as firms adjusted to reduced workloads”. For the 13th successive month, purchasing fell at the sharpest pace in the survey’s history.
- A lack of new work for tender “contributed to pessimism amongst constructors regarding future activity growth”. For the fourth time in six months, “constructors were negative”.