Big decline in house-building results in lowest construction growth in 3½ years

Growth in the Irish construction industry fell to its lowest level in 3½ years during April, with the fall-off being driven by a major drop in the number of new houses built.

The Ulster Bank construction industry purchasing managers' index, a seasonally-adjusted index designed to measure the overall performance of the construction sector, found that overall growth was marginal at 50.6. A figure of 50 indicates zero growth.

Civil engineering was the strongest sector, reporting a figure of 55.1, which signified "robust growth", according to the bank. Commercial building (53.4) also grew, but at a much lower rate than in March, while housing activity (39.1) fell back sharply.

Data for the survey is collected by NTC Economics and is based on interviews with purchasing managers in the building trade.

Ulster Bank chief economist Pat McArdle said it was not possible to make any conclusions about the long-term health of the construction sector based on data from a single month.

He cautioned that uncertainty over stamp duty in advance of the general election and the impact of the RTÉ documentary Future Shock: Property Crash, which was broadcast during the month, should not be discounted.

"I wouldn't be surprised if the index improves next month because there is no reason for commercial activity to go down," said Mr McArdle.

He pointed out that the industry seemed to be acting prudently and scaling back activity in response to a fall in demand. A similar slowdown in housebuilding occurred in 2001 when supply was curtailed sharply in response to a drop in demand.

Mr McArdle said he believed builders would be able to manage their way out of the situation, as they had in the past. He added that the latest data was a "welcome indication that builders are cutting back to avoid an oversupply situation, which could trigger much greater price falls".

Despite the slowdown in activity, employment in the Irish construction sector grew again in April, as it has done in every month since September 2003.

Firms said that the modest growth in staffing levels was related to the needs of ongoing projects rather than any expectation of new orders.

Mr McArdle said it was "interesting" that construction firms had continued to hire workers, but he "expected that to slow down to zero" in the coming months. "I couldn't rule out a few months of employment contraction, but overall I wouldn't expect it to be significant over the course of the year," he added.

New orders received by construction firms declined in April for the first time since the summer of 2003.

Construction firms also faced continued rises in their input costs. Ulster Bank does not measure the prices which construction firms charge, but Mr McArdle said that if they did it would be static, suggesting that builders' margins are being squeezed.