Construction activity still contracting

BUSINESS ACTIVITY in the construction sector continued to contract last month, new data indicates, but some industry participants show tentative signs that their pessimism about future market conditions is beginning to fade.

The latest Ulster Bank construction purchasing managers’ index, a key barometer of the sector’s declining fortunes, points to “substantial declines” last month in civil engineering, housing and commercial development activity.

However, the survey results suggest the rate of contraction is slowing down. “This adds to our sense that the most severe point of the construction contraction may be over,” said Simon Barry, senior economist at Ulster Bank.

The bank said the steepest contraction was recorded in the civil engineering sector.

“The pace of reduction of activity on civil engineering projects was broadly similar to that seen in the preceding month,” it said.

“Housing activity fell for the 32nd month. The latest decrease was still considerable, despite registering the weakest decline since July 2007.

“The smallest contraction during the month was seen in the commercial sector, although activity still fell at a substantial pace.”

Ulster Bank’s seasonally adjusted composite index, based on the results of a monthly survey of key construction sector companies, stood at 36.3 in June, ahead of the 31.1 reading in May.

A reading below 50 signals a decrease in activity and a reading above 50 signals an increase.

The housing activity reading was 33.4, up from 27.9, while the commercial activity reading was 38.5, up from 31.7. However, the civil engineering reading was virtually static at 30.9, up only slightly from 30.7.

“One interesting point from the June survey is that the index of expected future activity exceeded the key 50 no-change level for the first time since March 2008,” Mr Barry said. “This is an early sign of fading pessimism within the industry such that activity could begin to pick up on a 12-month time horizon, albeit from extremely low levels.

“We also note a 12-point increase in the employment index of the survey this month,” Mr Barry added.

“Again, this index is at low levels and is still pointing to falls in construction employment, but the fact that this component is retreating from its record low suggests that the pace of job-shedding in the sector may be easing.”