Construction sector activity picks up in May

Activity in the construction sector picked up in May after a five-month slowdown in growth, according to a new economic indicator released yesterday.

The Ulster Bank Construction Purchasing Managers' Index (PMI) showed that conditions in the construction market improved markedly last month, boosted by particular strength in housing activity.

The Construction PMI as a whole rose from 54.4 in April to 55.5 in May, indicating an uptick in growth.

A reading above 50 in the PMI signals expansion.

Growth in activity levels had fallen back over each of the five previous months.

Ulster Bank chief economist Pat McArdle said that while the construction industry appears to be "in good shape", the pace of growth is much lower than at the end of last year.

The final quarter of 2004 was an exceptionally buoyant period for construction companies, according to official figures.

He pointed out that while housing activity has been easing steadily for most of 2005, it began to re-accelerate in May.

The housing element of the PMI produced a reading of 56.4 last month, up from 53.3 in April.

The rate of growth in commercial activity has meanwhile continued to slow.

In May, this part of the index read 55.3, having fallen from 56.2 in the previous month.

The commercial sub-index is now back at levels recorded a year ago.

The civil engineering sub-index - the third component of the overall PMI - delivered a reading of 51.9 in May, up from 48.5 in April. This is more or less indicative of flat activity levels.

Mr McArdle expects that civil engineering will start to expand more strongly over coming months, providing some comfort for a projected slowing in house construction.

He said yesterday that the house-building market is "still fairly much on the boil", but added that it should turn around at some point this year.

Provided the Government delivers on its infrastructural spending programmes in a timely fashion, civil engineering activity should be expanding just as housing growth slows, according to Mr McArdle's analysis.

The ESRI has been among prominent commentators warning that an abrupt end to housebuilding could threaten economic growth in the Republic.

A breakdown of the PMI shows that employment levels in the construction sector increased solidly in May as firms took on new projects.

The data also show however that the rate of job creation slowed for the sixth successive month to the weakest level since June last year.

Mr McArdle expects construction employment growth to be modest in the first half of the year when compared to the 13 per cent increase recorded in 2004.