10/2/2014: Ulster Bank Construction PMIs: January 2014

Ulster Bank Construction PMIs are out today with a massive hype over the numbers sweeping official analysts circles. Let's take the numbers in:

• Housing Activity index in January hit 59.8, which is statistically above 50.0 and marks 7th consecutive month of nominal readings above 50.0, although two of these months were not statistically significantly different from 50.0. Nonetheless, good news. 3mo MA through January 2014 is now at 61.1 (very healthy) against previous 3mo MA of 58.3. And 6mo MA is at 59.7 above 43.4 6mo MA through January 2013. Again, good numbers. However, the activity growth rates have slipped m/m, down from 63.2 in December 2013 - a significant fall of 3.4 points. Another key caveat here is that activity is rebounding from extremely low levels, so we can expect a big bounce. The encouraging news is that the bounce is sustained over 7 months and as the first chart below shows - it is robust and well above the upward-sloping long run trend.
• Commercial sector activity is also above 50.0 in January at 59.3. Overall dynamics are very similar to those in the Housing sub-sector. The index is now above 50.0 nominally for 6 consecutive months, with five of these being statistically significantly ahead of 50.0. 3mo MA is 60.5 (high) and compares favourably to 3mo MA through November 2013 which stands at 56.2. But, again, monthly change in the index shows slower growth in January (59.3) than in December 2013 (62.3). And low levels of activity for the starting point are also suggesting this to be a sustained rebound, consistent dynamically with normal recovery. Good news is that the series are still well above the long run upward trend line.

• Civil Engineering sub-index disappointed once again. In January 2014 index fell to 37.3 - the first time we have the reading below 40 since July 2013. This is plain ugly, as the index fell from 43.2 in December. We have not seen any growth in the Civil Engineering sub sector in any month since January 2009. Poor dynamics are confirmed by 3mo MA, 6mo MA and 12 mo MA - in other words, any way you take this data - it is bad.

• Overall construction sector activity index slipped to 56.4 in January 2014 from 58.3 in December 2013. There is much hoopla in official comments about December reading being 'huge', and it was strong, but it was way weaker than the top readings over the last 6 months across all subcomponents (61.7 in Housing activity recorded in October 2013) and it was only the 3rd highest reading for the overall index in the last 6 months. In other words, it was strong, but it was not spectacular. Worse, at 56.4 we are now below 3mo MA and bang on with the 6mo MA. Good news - we are still above the upward-sloping long run trend line. This is the fifth month of readings over 50.0 and all five were statistically significant.

So top of the line summary for indices: we have good readings in overall index and two sub-components, and a very poor reading in one subcomponent. No need for any spin here - net sector activity is positive and it has been sustained over few months now. Let's hope this continues so we can set aside any fears of the latest improvements being a 'dead cat bounce'.