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Housing construction activity sees first slowdown since 2013

Activity in the construction sector declined for the third month in a row, the latest Purchasing Managers’ Index from Ulster Bank shows.

Ulster Bank’s Construction PMI showed a reading of 48.2 in November, up from 46.2 in October. Any figure under 50 signals contraction in the industry. 

The November slowdown included a decline in activity in housing, the first one recorded since June 2013, but activity in the commercial sector returned to growth for the first time in three months. 

Meanwhile, civil engineering activity declined for the 15th consecutive month and at the fastest pace in almost six and a half years.

Simon Barry, chief economist at Ulster Bank, noted that official “hard” data on residential construction, including housing starts and completions, continue to point to robust growth in the sector. 

“Indeed, this divergence between the relative strength of “hard” official measures of economic activity and the relative weakness of survey results is not confined to the housing sector,” the economist said. 

“We think that recent weakness in the Housing PMI is perhaps more reflective of large, adverse moves in business sentiment generally – likely related to acute Brexit uncertainty – than of marked weakness in actual underlying housing activity,” Mr Barry said.

“In this respect, we would not be surprised to see some reversal of recent Housing PMI weakness in the months ahead, though we do think that the recent trend in the overall Construction PMI is pointing to downside risks to the construction outlook as we head into 2020,” he added.

Today’s PMI shows that despite a slowdown in activity and new orders, construction firms increased their workforce numbers again during November. 

Ulster Bank also noted that the rate of job creation was the fastest in four months, with companies indicating that greater workforce numbers sometimes stemmed from company expansion initiatives. 

Meanwhile, amid widespread reports of greater raw material prices – including steel, insulation and fuel –  input costs rose sharply during November with the rate of inflation quickening to a seven-month high. 

Looking ahead, Ulster Bank said that business confidence was little changed from October’s three-month high, with around 29% of survey respondents anticipating activity to increase over the coming 12 months. 

Expectations of an increase in customer orders was among the reasons for positive sentiment, but the degree of optimism was below the series average, amid reports of Brexit uncertainty, Ulster Bank said.

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