Wednesday, April 11, 2012

11/4/2012: Irish Construction Sector PMI for March

Irish construction PMI for March 2012 (published by Ulster Bank) posted a 58th consecutive monthly contraction with a reading of 46.7 against 45.8 in February 2012. In other words, construction sector activity has now been below 50.0 reading every month since June 2007.

Commercial sector activity showed accelerating decline at 47.4 in march 2012 against 49.1 in February 2012. This puts to a test some of the assertions made in recent months by sector analysts and in the media that commercial construction activity is showing a rise on the foot of robust FDI investments.

Engineering sector activity - primarily driven by public projects - was showing decline at 37.0 in march, slower rate of decrease than consistent with 35.6 reading in February. Housing sector activity remained on a relatively constant rate of decline at 42.3 in March compared to 42.4 in February.

Desperate reports of some analysts have decided to focus "positive" attention on allegedly broadly unchnaged new orders sub'index and improved business sentiment. However, actual data release stated that (emphasis and commentary mine):

  • New orders were broadly unchanged in March, having declined solidly in the preceding month (thus unchanged in March means unchanged from the losses sustained previously). Some firms indicated that small contracts had been secured during the month, but others indicated that a reluctance among clients to commit to projects had prevented a rise in new orders. (If this is a net positive, I should be probably joining the Russian Ballet)
  • Business sentiment was at its highest since January 2007 in March and, as such, was the strongest since the current downturn in activity began (in June 2007). Exactly 46% of respondents  predict that activity will increase over the next 12 months, with signs of improving economic conditions and a forecast rise in new orders supporting optimism. (Alas, the Ulster Bank release fails to give us any data on business sentiment sub-index. In fact, this is the only indicator missing in the charts supplied by the Markit note).

What no report that I have seen so far mentions is that, per Ulster Bank-Markit note: Construction sector "workloads remained insufficient to generate a rise in employment in the sector during March. That said, staffing levels decreased at a rate that was much weaker than seen throughout much of the current downturn." So employment continues to drop. And profit margins are also continuing to fall: "The rate of input cost inflation accelerated for the third consecutive month in March, and was the fastest since April 2011. Higher prices for fuel and other oil-related products were reported by panellists."

On the foot of this information, and presumably with an aid of some tealeafs floating in a cuppa, one respectable analyst concluded (emphasis and commentary mine): unchanged new orders and unverifiable "spike" in business sentiment "...may tentatively signal that the Irish market is approaching stabilisation, albeit at a very depressed level." Ok, then, Bolshoi School is recruiting for Junior Infants... I am off for an audition.

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