Ulster Bank economist predicts soft landing for construction

 

A leading economist has predicted a soft landing for the construction industry as the sector eased to its lowest rate of growth since February 2004.

Pat McArdle, chief economist at Ulster Bank, said that although caution was required, the trends could be consistent with a soft landing. "It seems that both demand and supply in housing are easing," Mr McArdle said yesterday. "This is what the doctor ordered and provided it continues, should underpin a soft landing and a continuing deceleration in price inflation."

The Ulster Bank's Purchasing Managers' Index (PMI) for the construction industry was published yesterday, showing business activity still progressing positively in November.

However, the PMI also shows that growth rates in activity and employment have decelerated to low rates not seen since 2003. The overall PMI index eased from 56.4 in October to 54.2 in November and moved closer to the 50 threshold, below which a reading indicates falling activity.

Significance was accorded to the fact that housing activity - one of the three broad sub-categories in overall construction - registered a reading of 47.6 in November, compared with a positive reading of 53.3 in October, the first decline since July 2003.

Growth in commercial activity was positive and steady, recording 56.2 in November compared with 56.7 in October. The reading for civil engineering activity, at 56.6, was positive in November, but less so than in October when a reading of 57.9 was recorded.

A separate index of employment trends for the sector - produced in tandem with the overall index - revealed that, while positive, November's employment growth was the weakest on record since September 2003, when net job losses were recorded. Confidence in the industry's future also hit a recent low as the number of firms fearing a worsening of demand conditions in 2007 hit a three-year high.

Costs faced by the industry also increased sharply in November, with particularly strong increases recorded for plastics and metals. Despite this, construction firms continue to expand their purchasing activities at a robust pace.

Mr McArdle said trends in the survey results were unlikely to be affected by the Budget.

"These measures will boost demand but continuing mortgage-rate increases are likely to be a stronger influence, causing prices to ease further," he said.

Last Wednesday, Minister for Finance Brian Cowen announced a doubling in mortgage interest relief for first-time house buyers.

According to the Central Statistics Office latest Quarterly National Household Survey, more than a quarter of a million people - one in eight of the workforce - work in the construction sector.

The Economic and Social Research Institute recently calculated that one-quarter of the economy's entire output now depends on the sector.