Activity decreases amid sharper fall in new orders
- Market slowdown and price pressures hit demand
- Staffing levels broadly unchanged
- Further steep rise in input costs
Irish construction activity decreased for the second month running in November as demand weakened amid ongoing inflationary pressures. Companies were therefore reluctant to take on additional staff and reduced their purchasing of inputs.
The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index dipped to 46.8 in November from 47.4 in October, posting below the 50.0 no-change mark for the second month running to signal back-to-back declines in total construction activity. The latest fall was solid and the fastest since July.
The pace of decline in housing activity accelerated sharply in November, with the category joining civil engineering in seeing a rapid reduction over the course of the month. The rate of contraction in commercial activity eased markedly, however, and was only marginal.
Anecdotal evidence suggested that a drop in new orders and a market slowdown were behind the fall in activity. Softer market conditions also caused a reduction in new orders, with price pressures an additional factor. New business decreased for the eighth month running and at the fastest pace since August.
Input costs continued to rise sharply, with the rate of inflation quickening in November as more than 47% of respondents signalled an increase over the month. Across the board, a number of firms reported inflation, while others pinpointed rises in energy and fuel prices as having a particular impact on their cost burdens.
A combination of lower demand and price pressures led construction firms to make efforts to reduce stock holdings. As a result, firms reduced their purchasing activity sharply, and to the greatest extent in three months.
Companies also showed a reluctance to take on additional staff. Employment was broadly unchanged in November following three months of expansion.
The stalling of hiring also coincided with a drop in confidence regarding the year-ahead outlook for activity. Sentiment was down to a three-month low amid concerns of a wider economic downturn and the impact this will have on workloads. On balance, however, firms were optimistic that activity will increase over the coming year, with some expecting housing demand to support growth.
Supply-chain disruption remained a feature of the latest survey, with lead times lengthening markedly again. That said, the rate of deterioration in vendor performance was the softest since February 2020 . Construction firms increased their usage of sub-contractors for the third month running and to the greatest extent since February. Meanwhile, their availability continued to decrease and rates charged rose rapidly.
Commenting on the latest survey results, John McCartney, Director & Head of Research at BNP Paribas Real Estate Ireland, said:
“After slowing this summer, residential activity stabilised in September and October. But a re-acceleration of input cost inflation, along with slower house price growth, intensified viability challenges in November. This contributed to a sharp contraction in residential activity. The short-term outlook for housing completions remains positive. Our 28,000 forecast for 2022 should be attained, comprehensively surpassing Government targets. And pipeline figures suggest that 2023 will see continued strong completions. However, the November PMI data indicate that the flow of new projects has tapered-off. In particular, new orders slowed for the eighth successive month and, reflecting this, employment growth stalled. The reduction in early-stage building work is dragging on overall activity and threatens to impact on housing completions later in the cycle.
Given the time it has taken for residential completions to reach current levels, any prospect of back-sliding is concerning. But several factors may help ease viability challenges in the longer run. Two new Government initiatives – the First Home Scheme, which was introduced in July, and the relaxation of mortgage rules from January – should facilitate builders to sell homes at higher prices. Meanwhile agents have reported that site values are beginning to adjust downwards. Perhaps reflecting these positives, the number of building firms expecting to be busier in a year’s time still exceeds the number expecting to be quieter.”
Press contact: Priya Chavva, Business & Marketing Coordinator