Attention Builders: Ireland's Construction Activity Takes a Hit with Declining New Orders

After experiencing a promising growth in June, the construction activity in Ireland faced a setback in July.

After experiencing a promising growth in June, the construction activity in Ireland faced a setback in July. This decline was evident with the headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index falling to 45.6, dropping below the 50.0 no-change mark. This indicates a renewed fall in total activity within the construction sector.

Over the past ten survey periods, construction output has decreased in nine, making the latest reduction in July the most significant so far this year. The decline in activity was widespread across all three monitored categories of construction, with the commercial sector posting its first fall in six months. Respondents, who noticed a drop in activity at the start of the third quarter, attributed it to a renewed weakening of customer demand.

The evidence provided by businesses aligns with the latest data on new orders, which signaled the first reduction in six months. Factors contributing to this decline included subdued customer confidence and delays in project approval. Overall, the decrease in new business was solid, reflecting the challenges faced by the construction industry.

Despite the drop in workloads, construction firms in Ireland displayed resilience by continuing to expand their staffing levels. Employment increased for the seventh consecutive month, and the rate of job creation was solid, reaching its fastest pace since February. This consistent hiring activity suggests that construction firms remain optimistic about future growth prospects. While sentiment increased slightly from June, it still fell below the series average. Firms expressed hopes that demand would show signs of improvement over the next 12 months, with approximately 30% of respondents sharing this sentiment.

In contrast to the increase in employment, companies scaled back their purchasing activity in July. This decline marked the second consecutive month of reduced purchasing and was the most significant since January. The drop in demand for inputs coincided with a rare occurrence in the industry—shorter delivery times from suppliers in over 12 years. This indicates a return to normalcy in supply chains. The rate of input cost inflation picked up in July, yet it remained significantly softer compared to 2021 and 2022. Roughly 23% of respondents reported rising input costs at the start of the third quarter, while only 3% experienced a decrease.

Construction firms have increasingly relied on subcontractors, with usage increasing for the sixth successive month. However, the pace of this increase weakened compared to the previous survey period. At the same time, availability of subcontractors declined to its lowest point since February. This data suggests that while subcontractors continue to be utilized, there may be constraints regarding their availability and the capacity to meet industry demands.

On a positive note, construction firms in Ireland reported increased employment for the seventh consecutive month and the tenth time in the last 12 months. This demonstrates the industry's ability to attract and retain staff, even amidst a tight labor market. It also signifies a strong and underlying confidence about the future of the construction sector. This confidence is further reflected in the future expectations indicator, which remains positive and shows a slight increase in sector optimism between June and July.

In conclusion, the construction industry in Ireland experienced a decline in activity in July, primarily attributed to a reduction in new orders and weakening customer demand. Despite these challenges, construction firms continued to expand their workforce, displaying their resilience and optimism for future growth. It is crucial for businesses in the sector to navigate uncertainties effectively and stay adaptable to the changing landscape.