Construction activity increased again in July, inflation hits record high
There was a substantial increase in construction activity once again in July, according to the latest Construction Purchasing Manager’s Index (PMI) from Ulster Bank.
While the index which tracks changes in total construction activity dropped from 65 in June to 62.8 in July, it still suggests a substantial increase in activity last month.
Index readings above 50 signal an increase in activity on the previous month, while readings below 50 signal a decrease.
Growth in housing activity continued to lead the overall expansion in July, despite the rate of increase easing further from May’s record.
Rates of expansion also softened in the commercial and civil engineering categories, but remained marked nonetheless.
The PMI shows that the loosening of restrictions and increase in demand supported continued growth of new orders.
“Confidence among construction firms picked up from June and remains well above its long-run average,” said Simon Barry, Chief Economist with Ulster Bank, Republic of Ireland.
The rate of growth, however, brings its own challenges. The rate of input cost inflation rose to a record high in July.
Mr Barry said there was considerable disruption to supply chains linked to Brexit and the pandemic which manifested itself in delivery delays, materials shortages and a further acceleration.
He said its not just a phenomenon in the Irish construction sector, it is being experienced globally, with similar PMIs in the UK recording higher rates of input cost inflation.
New business rose at a considerable pace, and one that was faster than that seen in June.
According to the PMI, construction firms raised staffing levels for the fourth successive month, with the rate of job creation remaining strong.
Respondents indicated that improving customer demand was behind the increase in employment.
This also drove a further expansion in purchasing activity – the fourth in as many months.
Severe supply-chain disruption remained a feature of the construction sector as the second half of the year got underway.
The survey shows that suppliers’ delivery times lengthened to a greater extent than was the case in June, and again at a near-record pace.
According to respondents, delivery delays were caused by Brexit and material shortages.
This ongoing disruption to the supply of materials meant that their prices continued to increase.
The PMI shows that the rate of input cost inflation hit a fresh survey-record high for the third consecutive month, with more than three-quarters of all respondents indicating that their input prices had risen during July.
“55% of firms expect a rise in activity over the coming twelve months,” Mr Barry said, “as the boost to demand from the economy’s reopening is expected to continue to underpin prospects for activity over the coming year”