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Building sector sees sharp drop following mid-summer surge

Construction activity plunged again last month following an earlier post-lockdown increase, as the economic impact of the pandemic weighs on the sector.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) published this morning notched up a reading of 44 in August, compared to 53.2 in July.

Any figure below 50 signals contraction.

And worryingly for the Government and home-hunters, the pace of activity in housing construction showed a clear slowdown.

The housing activity index slumped to 44.7 from 57.8 in July – a sharp contraction.

The fall comes as the pace of house building still remains well below levels required to provide a sufficient number of homes to meet long-term demand.

While the rate of contraction across the sector last month was nowhere near as severe as seen during the lockdown, it underscores the level of uncertainty that exists in the trade.

“Some firms have continued to report ongoing recovery in activity and orders, though in August this was more than offset by those who reported a drop,” said Simon Barry, chief economist for the Republic of Ireland at Ulster Bank.

“High levels of market uncertainty linked to the effects of the pandemic and some recent signs of a cooling in the wider economy’s recovery momentum weighed on the August results, including in relation to sentiment about the sector’s future prospects.”

Activity fell across all segments of the construction sector.

The index for commercial activity tumbled to 41.6 from 50.2. The index for civil engineering dipped to 42.1 from 42.3.

Despite the poor readings last month, Mr Barry remains convinced housing in particular will show signs of improvement in coming months.

“Respondents continued to express optimism in the year-ahead outlook reflecting expectations that, despite some prominent risks and headwinds, the economy’s recovery will stay on track,” he said.

“Furthermore, with leading indicators such as the housing commencements data continuing to point to further upside for housing output, we would be surprised if the housing PMI in particular doesn’t show renewed improvement in the months ahead,” added Mr Barry.

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