House-building rebounds strongly following easing of restrictions

Ulster Bank’s April PMI shows sector continued to face severe supply-chain disruption

Activity in the Irish house-building sector bounced back strongly last month following the lifting of Covid-related restrictions on residential construction.

According to Ulster Bank's latest construction purchasing managers' index (PMI), house-building activity jumped to its highest level so far this year.

The sub-index for housing rose to 54.8 in April, up from 33.8 the previous month, with firms linking the increase to the relaxation of restrictions on residential work and a pick-up in new orders.

The Government imposed a lockdown on all non-essential construction work in early January to stem the spread of Covid-19. The residential element was lifted last month.

Ulster Bank’s index for the construction sector as a whole rose to 49.3 in April, up from a March reading of 30.9, but remained below the 50 mark, which indicates expansion.

The lender’s report said new business expanded in April, ending a three-month sequence of contraction while new orders rose “markedly amid the release of pent-up demand”.

It said looser restrictions and higher new orders also led construction firms to take on extra staff, with job creation recorded for the first time in the year to date. Purchasing activity also stabilised following sharp falls over the first three months of the year.

Supply-chain disruption

However, it noted that construction firms continued to face severe supply-chain disruption when purchasing inputs. The latest substantial lengthening of lead times reflected the Covid-19 pandemic, Brexit and global shipping issues such as the blockage of the Suez Canal, it said.

These supply issues saw a further acceleration of the rate of input cost inflation, which rose at the fastest rate since July 2004, and was among the strongest in the survey’s history. Higher shipping costs and rises in prices for items such as steel and timber were also reported.

The business confidence element of the survey was unchanged from the 2½-year high posted in March.

"The easing of restrictions on housing construction which took effect last month has clearly unleashed a return to more positive activity trends in a key area," said Ulster Bank chief economist Simon Barry.

“Housing was the only sub-sector to experience a return to growth last month, albeit that the pace of decline eased notably in both commercial and civil engineering,” he said.

“Looking ahead, this month’s keenly awaited reopening of the wider sector, underpinned by a sizeable expansion in overall new business flows in April, should promote a broader strengthening of the overall sector’s activity trends beyond housing,” he said, noting a pick-up in confidence among construction firms .

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times