6/1/16: Irish Manufacturing, Services & Construction PMIs: 4Q 2015

Time to update Irish quarterly PMI readings for 4Q 2015. Please note: the following refer to average PMI readings per quarter as supplied by Markit.

Irish Manufacturing PMI averaged 53.7 in 4Q 2015, down slightly on 54.7 in 3Q 2015 and the lowest quarterly reading since 4Q 2013 (jointly tied for that honour with 1Q 2014). The quarterly average has now declined in every quarter since the period peak in 4Q 2014.  Still, at 53.7 we have rather solid growth signal as is. On y/y basis, Manufacturing PMI is now down 5.1% after falling 2.6% in 3Q 2015 and rising 0.7% in 2Q 2015. 4Q 2015 marks tenth consecutive quarter of above 50.0 readings for the sector, with all of these readings being statistically above 50.0 as well. The trend in growth is down.

Irish Services PMI slipped from 62.6 in 3Q 2015 to 61.8 in 4Q 2015, down 1.3% q/q after posting a 1.4% rise q/q in 3Q 2015. On annual basis, the PMI fell 0.11% having previously risen 0.91% in 3Q 2015 and falling 0.48% in 2Q 2015. This marks 20th consecutive quarter of above 50.0 readings in the sector. In level terms, 61.8 signals robust growth in the sector, so it is a positive signal, albeit over time consistent with quite a bit of volatility and no strongly defined trend.

Irish Construction sector PMI (through November 2015) for 4Q 2015 stood at 55.9, down from, 57.1 in 3Q 2015 and marking the second consecutive quarter of index declines. Q/Q index was down 7.95% in 3Q 2015 and it was also down 2.16% in 4Q 2015. Y/Y, index was up 1.42% in 2Q 2015, down 7.6% in 3Q 2015 and down 12.4% in 4Q 2015. Volatile movements in the series still indicate downward trend in growth in the sector.

Chart above summarises the sub-trends, with Services trending very sluggishly up, while Manufacturing and Construction trending down.

As shown in the chart above, my estimated Composite measure, relating to PMIs (using sectoral weights in quarterly GDP figures) posted moderation in growth rate in 4Q 2015.  Composite Index including construction sector stood at 54.4 in 4Q 2015, down from 55.5 in 3Q 2015, hitting the lowest reading since 3Q 2013. This marks second consecutive quarter of declining Composite Index. Index is now down 1.9% q/q having previously fallen 3.8% q/q in 3Q 2015. In y/y terms, Composite Index was up 0.8% y/y in 2Q 2015, down 3.5% y/y in 3Q 2015 and down 6.52% y/y in 4Q 2015. While levels of Index suggest relatively robust growth in the economy across three key sectors, there is a downward trend in the growth rate over time.

So in the nutshell, Irish PMIs continue to signal robust growth, albeit the rate of growth appears to be slowing down along the new sub-trend present from 1Q 2015 on.

Two charts to highlight relationship between PMI signals and GDP and GNP growth rates (data through 3Q 2015).

10/7/15: Irish Quarterly PMIs: Manufacturing, Services & Construction

Irish PMI for June, released earlier this month by Markit (co-branded by Investec) give us a chance to look at quarterly activity. Given volatility in both Manufacturing and Services activity in the monthly data, this provides a slightly better potential insight into what is going on in the economy (see caveat at the bottom of the post).

Q2 2015 average PMI for Manufacturing sector reads 55.8 - the lowest for any quarter since Q2 2014, but still solidly in an expansion range. Q2 2015 marks second consecutive quarter of declining manufacturing PMI readings. However, on a positive side, Q2 2015 was the 8th consecutive quarter of readings above 50. Year on year, growth in the sector remained largely unchanged and growth de-accelerated on a quarterly basis.

Q2 2015 average PMI for Services rose marginally to 61.8 from 61.6 in 1Q 2015 and is below 62.1 average for Q2 2014. Q2 2015 marks 18th consecutive quarterly reading above 50 for the Services sector. Year on year, growth slowed down in the Services sector and quarter on quarter it remained largely static.

Construction sector PMI (co-branded with Ulster Bank) posted quarterly average of 60.3 in Q2 2015, well above 54.0 average for Q1 2015, but below 61.2 average for Q2 2014. Thus, year on year growth fell in the Construction sector, but there was a significant acceleration in quarter on quarter growth. Q2 2015 marks 8th consecutive quarter with average PMI above 50.0.

Composite PMI (subject to future revisions due to sectoral weights changes once we have Q1 and Q2 national accounts) posted a reading of 60.4 in Q2 2015, up on 59.0 in Q1 2015 and marginally higher than 60.2 reading in Q2 2014. Year on year, composite PMI signalled basically static performance, while quarterly growth improved somewhat in Q2 2015.


Caveat: Irish PMI readings have very low direct correlation to actual growth in the economy, measured by either GDP or GNP. Historically, PMIs levels and changes explain at most ca 10.6 percent of variations in GNP and at most 8.8 percent of variations in GDP. In other words, booming PMIs, on average, do not translate into booming economy. 

16/615: Building & Construction Ireland: Something's Up, Something's Down

So allegedly construction workers are now being bid out of Poland back into Ireland, the cranes are rising everywhere.

Nama is on track to deliver thousands of new homes, and commercial property markets are booming, primed for new development (see http://www.irishtimes.com/business/commercial-property/nama-set-to-dispose-of-ready-to-go-housing-sites-around-dublin-1.2234668)

Indices of construction activity are up in value, officially, q/q and y/y, while volume of activity is up y/y.

PMIs are signalling massive increases in building.

But the latest Building Information Index shows that the value of construction projects launched in 1Q 2015 was down EUR333 million or -20% on 1Q 2014, declining to EUR1.359 billion. In five out of seven escorts covered by the report there have been declines in activity, led by residential building sector that posted a decline of EUR174 million to EUR600 million in 1Q 2015. Good news, applications for new build are up 42% y/y in terms of value (including price and cost effects). Not surprisingly (down to price and development costs inflation), residential sector value of new applications is up 91%, while commercial is up 59%.

As they say, if we ain't building more and better, at least we are building more expensively...

15/5/15: Irish Construction PMI: April Stronger PMI, but Overall Activity is Weak

Irish Construction Sector PMI for April was released by Markit earlier this week. Here are the main points:

Overall Activity Index in Irish construction rose to 57.2 in April from 52.9 in March, bringing index back to the levels of January 2015. Current 3mo average is at 54.0 against 3mo average through January 2015 at 61.2, showing a clear slowdown in activity growth over most recent three months.

All three components of the index posted increases in April, with Civil engineering Activity index reaching above 50 marker (to read 51.0) for the first time since January 2015.

It is worth noting that Construction Sector PMIs have been pretty much out of touch with actual construction sector activity. Current readings on PMIs side signal blistering growth in activity and this is sustained, on average from the start of Q2 2013. Yet, Irish construction sector remains the second worst performing sector in the EU since the start of the crisis:

You can see the disconnection between PMIs (these are quarterly averages) and Construction sector actual performance setting in post Q2 2013 here:

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'.

9/12/2013: Irish Construction Sector PMI, November

Irish Construction sector PMI (Ulster Bank & Markit) is out today for November. The numbers are good.

Overall Index is down to 58.8 in November from 59.4 in October, but the reading remains firmly above 50.0 and this markets the third consecutive month of above 50.0 readings. All readings since September are statistically significantly above 50.0.

Dynamics are good, indicating solid upward trend:

• 12mo MA through November 2013 is at 48.0 against 44.4 for the same period in 2012
• 6mo MA improved to 52.4 in November 2013 against 42.1 a year ago
• 3mo MA is up at 58.0 in November 2013 against 46.9 in 3mo through August 2013.

Total Activity Index is strongly driven by upward trends in Housing Construction:

• Housing Activity index is at 60.4 in November, which is down on massive 61.7 in October.
• 12mo MA is at 50.4 against 43.0 for the same period in 2012
• 6mo MA is at 55.4 against 41.7 12 months ago
• 3mo MA is at 60.5 against 50.3 for 3mo through August.

Another major driver for the upward momentum in overall Construction PMI was Commercial Activity - running in line with Housing (chart above):

• Commercial activity index moderated to 60.0 from 61.6 in October. Commercial and Housing Activity sub-indices have been running jointly above 50.0 for 4 months in a row; in statistically significant terms this dynamic is present for three months in a row.
• 12mo MA for Commercial Activity index remains below 50 at 47.9, but this marks a major improvement on 42.9 for 12mo average through November 2012.
• 6mo and 3mo MAs are outperforming y/y and period-on-period. 

Only disappointment is Civil Engineering sub-index which recorded accelerated rate of decline in November at 45.7, compared to October when the reading was 47.2. November marks second consecutive month of accelerating falls.

However, November rate of decline is much shallower than was recorded a year ago (31.1).

In general, strong news on PMI front. and This supports overall Manufacturing and Services trends (see here: http://trueeconomics.blogspot.ie/2013/12/5122013-services-and-manufacturing-pmis.html)

11/11/2013: Irish Construction PMI - September 2013

While on PMIs, let's update Construction PMIs too, to cover September 2013 data. Manufacturing and Services October PMIs are covered here: http://trueeconomics.blogspot.ie/2013/11/11112013-services-and-manufacturing.html

In September, Overall Construction Sector PMI for Ireland rose to 55.7 which is the first reading above 50.0 (and it is statistically significantly different from 50.0) since January 2009.

The rise was broadly anchored, with Housing sub-index up at 59.5, marking the third consecutive month of above 50.0 readings (although previous two months were not statistically distinct from 50.0). Commercial activity sub-index also posted a rise to 56.1, marking the second consecutive month of above 50.0 readings. However, Civil Engineering sub-index remained below 50 at 47.3, although the pace of declines in activity has eased somewhat from 41.0 in August.

2/9/2013: Sunday Times August 25: Construction Sector Revival?

This is an unedited version of my Sunday Times article from August 25, 2013.


Not a week goes by without a new report on the property market and construction sector digging up disparate shreds of evidence to suggest yet another turnaround in the property sector fortunes. Some of these are based on the real data, albeit often selectively interpreted; others, on desperate hodgepodge of hearsay and industry anecdotes.

Spin and marketing talk aside, the data itself can be highly unpredictable and hard to interpret. Between Q1 2010 and Q4 2011, Irish Construction sector Purchasing Manager Indices (PMIs) published by Markit and the Ulster Bank were signalling what looked like a stabilisation. CSO’s building and construction sector activity index also posted a quarter-on-quarter rise in Q3 2011. The sector promptly reverted into the red from there.

Faced with past false starts in the data and promotional advertorials in the media, we may be tempted to write off the building and construction sector altogether. This would be a mistake for at least three reasons.

Firstly, traditionally, the building and construction sector acts as one of the leading indicators of real, sustained economic recovery. In particular, in normal recessions, the recovery is led by the early return of firms to capital investment, including in buildings and structures, usually closely followed by an increase in residential investment by the households. Both the US and the UK are showing this pattern over the last two years. While Ireland's recession is driven by deeply structural factors, one can expect any sustained growth momentum to occur only on foot of renewed domestic investment.

Secondly, based on real factor costs calculations, Irish building and construction sector contributes directly 1.6 percent of Irish GDP today. This is a significant contribution, although it is just a half of the average contribution recorded over Q1 1997 - Q1 2013 period. Furthermore, building and construction contribution to GDP rose by 7.3 percent in Q1 2013, while the overall GDP at factor costs declined 1.3 percent. Bringing Ireland's building industry to the long-term sustainable levels in volume and value implies increasing its direct contribution to the GDP by over EUR1.5 billion on current levels to EUR3.8-3.9 billion.  Reaching this level of activity will put Irish building and construction sector output ahead of that by the agriculture, forestry and fishing.

Thirdly, some of the recent data on building and construction sector does warrant extremely cautious optimism.

Let's take a look at the main sources of information on the state of our construction industry. These include, CSO's quarterly reports on volume and value of output in the building and construction sector, as well as more forward-looking planning permissions through Q1 2013. We also have more current Purchasing Managers Indices (PMI) covering data through July 2013. Monthly CSO data on property markets indicates, albeit imperfectly, the trends in the demand for residential investment. Last, but not least, we have international forecasts and data from the Eurostat, ECB and Euroconstruct.

On the surface, the data concerning the building and construction output points to some improvements in the sector activity and dynamics. Per CSO, year-on-year, the volume of output in building and construction increased by 10.7 percent in Q1 2013.  There was an increase of 9.5 percent in the value of production in the same period. The annual rise in the volume of output reflects year-on-year increases of 26.8 percent and 2.4 percent respectively in civil engineering and non-residential building work. Alas, output in residential building decreased by 2.5 percent. Not exactly the growth breakdown one would expect from a building investment recovery.

The above weak positives, however, are further undermined by the fact that the levels of activity in the sector remain extremely low by historical and international comparatives.

Building activity in residential construction sub-sector back in Q1 2006 stood at 107.9 as measured by value index. In Q1 2013 the same stood at 7.8. The latter number represents an increase of just 0.5 points above the all-time low. Non-residential building sub-sector posted shallower peak-to-trough declines, although these still are well in excess of anything seen in normal recessions and in other euro area countries. Despite the shallower contraction, the non-residential construction also showed poor pick-up dynamics: the sub-sector output is now up just 2.6 points relative to the absolute low in Q2 2012.

Truth is, most of the recent gains in CSO’s building and construction indices to-date have been driven not by the organic private sector investment, but by civil engineering activities. Forth quarter running, this trend suggests that although, the construction sector might have stabilised, this stabilisation appears to be driven simply by the unprecedented fall in sector activity to-date, rather than by any sizeable pick up in demand for traditional building and construction investment.

The rosy projections from Euroconstruct, envisioning Irish construction sector expanding some 16% out through 2015 is case in point. As robust as this forecast growth number might appear, if it were to materialise, Irish construction sector will only return to 2011 levels of activity by the end of 2015.

Instead of a U-shaped recovery, we are currently witnessing a continued L-shaped disaster.

More forward-looking indicators, such as the construction sector PMIs strangely contradict the data on the actual sector activity reported both by the CSO and by the Eurostat. Since around mid-2009, civil engineering PMI persistently signaled sharper contraction than overall construction sector PMI and its housing and commercial sub-sectors. More ominously, PMIs across all sub-sectors of construction industry remain in a contractionary territory every month from January 2012 through July this year. One exception is a weak expansion signaled by the housing sub-index in July this year. No matter how one spins the PMI data, however, the indicator continues to show the sector shrinking, not expanding across all quarters since the onset of the crisis, including Q1 and Q2 2013.

This points to the deeper, structural problems in the sector.

Demand for new construction remains exceptionally low, outside the small sub-pockets of activity, such as premium segment of Dublin City apartments and houses, and the highly tailored top quality office space suitable for the booming services-exporting MNCs. The former trend is clearly evident in this week's residential property prices figures published by the CSO. It is further confirmed by the data showing continued weakness in demand for residential properties based on the volume of transactions in the markets. The latter is evident in industry reports and in aggregate shift in exports growth away from manufacturing and professional services toward ICT services.

All-in, investment in buildings and construction remains effectively nil across the economy and without a significant pick up in this investment, the sector performance is going to be highly volatile and concentrated in specialist areas, such as agricultural facilities and wind farms, to be accurately reflected in the high-level data.

This month, ECB Monthly confirmed that the malaise affecting the building trade in Ireland is similar in drivers to the demand-induced recession in the euro area. The ECB linked construction industry slump in Europe to weak macroeconomic conditions, debt-stricken households and dysfunctional banking system. All factors present in the euro area case for the building sector continued decline are also at play in Ireland.

Which brings us to the last piece of evidence necessary to complete the puzzle: the planning permissions. CSO data showed that the number of planning permissions for houses actually fell 9.3 percent year-on-year, reaching the second lowest level in history of the data series. Number of permissions for apartments also fell, by 18.4 percent on Q1 2012. More ominously, aggregate activity in the construction sector, as measured by the new permissions granted, shrunk across the board and hit an absolute lowest point for any quarter since Q1 1975.

In summary, there is little evidence to-date of a sustainable and robust uptick in Irish construction sector activity, while there is plenty of evidence that the sector output is close to stabilising at the extremely low levels. After six and a half years of ongoing declines, we now have a construction industry showing ‘bouncing at the bottom’ pattern of output. Alongside the rest of the economy, Irish building firms are desperately searching some catalyst for the restart of the investment cycle.

This realisation, coupled with the recognition of the overall importance of the sector to the Irish economy in the long run and as a potential driver for the recovery should lead to a significant re-think in the policy stance toward the sector.

Targeted tax incentives for construction sector have not worked and will not work in the current environment of subdued demand. Instead, we need to push for a more aggressive deleveraging of the households and development-related property sector firms. The former means re-thinking our approach to mortgages arrears to include mandatory and enforceable restructuring and rebalancing of the household debt to deliver sustainable and quick resolution of the debt crisis. The latter implies a re-drawing of the property tax to cover land holdings.

While we might like to stimulate the demand side of the investment equation in building and construction sector, such stimulus is simply not on the cards for the Exchequer struggling with excessive fiscal deficits and debt and for the economy suffering from severe private sector debt overhang. Focusing on dealing with the household debt problems, and holding the course on fiscal targets while trying to avoid tax increases and capital spending cuts is all we’ve got as the potential tools for spurring some recovery in the construction sector.

BOX-OUT:

This week, the IMF published a research paper co-authored by the fund own researchers with participation from the University of Geneva that looked at multi-annual fiscal consolidations planned across the 17 OECD economies in the period between 1980 through 2011, including those covering the current crisis period. The researchers asked a simple, but highly contentious question: are sovereign debt markets pressures responsible for forcing the governments into adopting austerity programmes.

The study has found the only in a third of all cases of past and current austerity programmes, the plans for fiscal consolidations were driven by market pressure. In the nutshell, markets are important, but by far not the main sources of pressure on the highly indebted and/or deficit-stricken governments. The authors further found that markets exerted pressure on the governments in the cases where fiscal and macroeconomic fundamentals have deteriorated more severely than in an average crisis. In other words, the markets are not the culprits behind the severe austerity, but rather a reflection of the underlying crises present in the first place.  Per authors: “If history is a guide, the absence of market pressure will not inhibit fiscal consolidation in advanced economies with currently weak fundamentals, such as high debt ratios, adverse debt dynamics or below trend growth.”

The researchers also concluded that the current crisis is different from the previous ones, primarily because the current crisis involves “…increased policy uncertainty, monetary union in the euro area, and unprecedented monetary accommodation.”

So the fabled ‘bad wolves’ of the bond vigilantes so frequently evoked by the austerity-planning Governments in the popular media and on election trails are nothing more than the ordinary messengers conveying the reality of fiscal and monetary mismanagement.

14/1/2013: Irish Construction PMI - December 2012

The latest stats for Construction Sector PMI for Ireland are out (link here) and the data is not encouraging. At 43.0, the rate of decline in the sector activity was slightly down in December 2012, compared to November and October 42.6 readings. In fact, the rate of decline was the lowest since May 2012 when the index reading was 46.3. However, despite this, Construction sector activity continued to show uninterrupted contraction for 41 months in a row (the records available to me only go back to August 2009).

Overall sector PMI is currently below12mo MA of 43.84 (2011 average was 44.42, ahead of the 2012 average). PMI in December was ahead of 3mo MA of 42.73, but not statistically significantly so, and ahead of 6mo MA of 42.17.

As shown above, rate of decline has moderated in all 3 core components of the overall index:

• In Housing sub-sector, index finished 2012 on 45.8, an improvement m/m from 44.2 in November and better than 3mo MA (44.47), 6mo MA (42.82) and 12mo MA (42.49).
• In Commercial sub-sector, index ended December at 41.3 - a gain on 39.8 in November, but below 3mo MA (41.73), below 6mo MA (42.65) and below 12mo MA (45.16)
• In Civil Engineering, index rose to 35.2 (still massively below 50 line that would mark zero growth) from 31.1 in November. The index is ahead of 3mo MA (32.33), ahead of 6mo MA (33.42) and below 12mo MA (36.86).

Correlations between different index components are shown below:

Overall, Construction Sector activity is still contracting, albeit contraction rate has moderated somewhat. In December 2011, the index stood at 49.9 (virtually zero growth signal), while in December 2012 it was at 43.0 (clear contraction). Housing subsector registered the only monthly expansion at 52.3 (since 2009) in December 2011, contrasted by an outright decline of 45.8 in December 2012. Commercial subsector activity showed nearly zero growth at 49.8 in December 2011 against an outright and deep contraction of 41.3 in December 2012. And Civil Engineering posted a substantial contraction reading of 37.7 in December 2011, more than matched by an even deeper contraction of 35.2 in December 2012.

11/12/2012: Ireland and EU27 Construction sector activity Q3 2012

On foot of the previous post looking at Q3 2012 data for Construction and Building Sector activity in Ireland, here are some international comparatives.

Keep in mind the mental key to decoding these: per Irish Government and a host of its 'analysts', Ireland has delivered an economic turnaround sometime back in early 2012 and our economy has stabilized. We are not Greece. In fact, per claims, we are the best performing economy in the Euro area periphery.

With the above in mind, chart below shows Ireland's Building & Construction Sector performance with index normalized at 100=2005, set against the backdrop of the 'Peripheral' Euro area states:

Pretty clearly, we are 'unique' in the periphery as being so far the worst performing economy in terms of Building & Construction. Now, let's recall that in Ireland, Building & Construction are about the only conduits for household investment. Also, let's recall that household investment is usually seen as the leading indicator of cyclical turnarounds.

Now, to the full EU27 comparative:

And again, by far, Ireland is the worst performer in the above. In fact, based on 2012 data through Q3:

• Ireland's index of construction activity is currently at 20.85, down on 2011 index of 23.4 and down on pre-crisis peak of 103.6. 
• Which means that Irish activity index is now down to the absolute lowest in the EU27. Worse, our index reading is worse than Greece's (37.7 or 81% ahead of Ireland's). 
• We are 44.7% below Greece, 53.2% below Spain, 62.7% below Portugal and 73.2% below Italy.

So that 'turnaround' or in Hillary Clinton's words 'rebound', then... certainly not to be seen in Building & Construction sector.

11/12/2012: Construction Sector Activity in Ireland - Q3 2012

Horrible numbers out today for the Irish Building & Construction sector.

Per CSO: "The volume of output in building and construction was 4.2% lower in the third quarter of 2012 when compared with the preceding period. This reflects decreases of 5.3%, 2.4% and 1.9% respectively in the volume of residential building, civil engineering and non-residential building. The change in the value of production for all building and construction was -2.1%. On an annual basis, the volume of output in building and construction decreased by 10.8% in the third quarter of 2011. The value of production decreased by 8.5% in the same period."

Now some details:

• Value Index for ex-Civil Engineering work stood at 17.5 in Q3 2012 (100=2005 activity levels), down 15.5% y/y, marking 23rd consecutive quarter of declines (! give that number a thought).
• Worse, ex-Civil Engineering Value index is down 2.23% q/q, down 10.15% for Q2-Q3 2012 compared to Q4 2011-Q1 2012 6mo periods and down 14.5% for the 6 months through Q3 2012 compared to same period in 2011.
• The rate of annual decline in the index has accelerated since Q4 2011.
• Volume Index for ex-Civil engineering work fell to 15.5 in Q3 2012 from 15.9 in Q2 2012. The Index is now also down consecutive 23 quarters. The annual rate of decline continued to accelerate for the fourth quarter in a row.
• In 6 months through Q3 2012 index fell 15.82% compared to same period of 2011. Quarterly index change is -2.52%.
• Relative to peak, Value Index in ex-Civil Engineering sector is now at 15.39% and Volume Index is at 14.57%.

In Civil engineering sector things are bouncing at the bottom - a pattern that is now running solidly from Q3 2010:

• Value Index for Civil engineering slipped to 63.0 from 64.6 in Q3 2012 compared to Q2 2012, marking a decline of 2.48% q/q. However, due to massive jump in Q2 (+16.2% y/y), index is still 9.2% ahead of Q3 2011 reading. This side of the Index is likely to suffer in 2013 due to Budget measures on capital spending.
• Volume Index of Civil Engineering also fell from 57.5 in Q2 2012 to 56.1 in Q3 2012 (-2.43% q/q), although the index is up 7.9% y/y in Q3 2012 (due to a one-off substantial rise of 14.8% in Q2 2012).

Overall, based on simple averages, activity in Civil engineering remained broadly unchanged - at absolute lows - since Q3 2010, averaging between 63.3 for the Value Index and 56.3 for the Volume Index. This dynamic is simply inconsistent with any talk about economic turnaround.

Misery comparatives for the sector are self-evident when looking at residential and non-residential indices:

• Value of Residential Construction reached another historical low in Q3 2012 - hitting 8.2, down from 8.5 in Q2 2012. This means that activity by value in this sub-sector is now down 91.8% on 2005 levels or 92.8% on pre-crisis peak. The Index has been posting annual rates of decline in every quarter since Q1 2007, or 23 quarters in a row. The rate of decline (y/y) also accelerated since Q1 2012.
• Volume of Residential Construction is down from 7.6 in Q2 2012 to 7.2 in Q3 2012. Again, this implies that volume index is now down 92.8% on 2005 level and 93.0% down on pre-crisis peak. Annual rate of decline accelerate to 20% in Q3 2012, the highest rate in 4 quarters. The index has now posted 26 consecutive quarters of annual declines.
• Non-residential Construction Value Index fell from 53.5 in Q2 2012 to 52.5 in Q3 2102, with annual rate of decline accelerating to 15.5% in Q3 2012, marking third consecutive quarter of annual declines. The index is now 57.4% down on pre-crisis peak.
• Non-residential Construction Volume Index is down from 47.5 in Q2 2012 to 46.6 in Q3 2012, marking an accelerated annual rate of decrease of 16.3% in Q3. The Index is now down 58.4% on pre-crisis peak.

If anything the above dynamics clearly show that the rates of activity collapse are accelerating through Q3 2012, nto ameliorating or turning to positive growth. Both series dynamics, therefore, are consistent with worsening of economic conditions, not stabilization or a turnaround.

I will blog on European countries comparatives in the next post.

15/6/2012: Q1 2012 Construction Sector Activity for Ireland

Having dealt with leading indicator for Construction sector activity - Ulster Bank PMIs - in the previous post, now's the time to update the latest actual outrun figures from the CSO that cover Q1 2012. Keep in mind - core conclusion in the previous analysis showed no signs of uptick in activity in the sector, with housing and commercial real estate construction activity continuing to shrink.

Pre latest CSO data:

• In Q1 2012 Value of all activity ex-Civil Engineering has fallen to 18.7 against 20.6 in Q4 2011. Quarterly rate of decline therefore is -9.22% for value against the annual rate of decline of -13.4%. Y/y rate of decline accelerate from Q4 2011 when it was 8.4%. Over last 6 months the index declined -5.07% compared to previous 6 months and -10.88% y/y. Q1 2012 marks an absolute record low activity by value in the broader construction sector ex-civil engineering.
• In Q1 2012 Volume of all activity ex-Civil Engineering fell to 16.7 from 18.5 in Q4 2011, marking another record low for the series. Year on year, the index has fallen 13%, which represents the sharpest contraction in four consecutive quarters. Quarter on quarter the index is down 9.73%. Things are getting much worse, rather than less worse. Over the last six months, average index reading fell 5.38% compared to previous six months average and year on year last six months average is down 9.51%.
• Relative to peak, value of construction production ex-civil engineering now stands at just 16.45% of the peak levels and volume of activity is now at 15.70% of the peak levels, both showing record declines.

For Civil Engineering sub-sector - the very same trends are true, with one exception - the rate of declines in activity slowed, not accelerated, in Q1 2012. Alas, we are thus in the case of getting worse more slowly, which is, as I like pointing out, not the same as getting better.

Value of Residential Construction fell to 9.4 in Q1 2012 against 9.7 in Q4 2011. The index declined 1.4% y/y and is now down, on average 4.5% in the last six months compared to previous six months. Year on year, average activity in the last six months fell 18.03%. Now, keep in mind, Residential Construction is now running at 91.75% below its peak pre-crisis levels.

Volume of Residential Construction fell to 8.5 from 8.8 in Q4 2011, a decline of 15% y/y. Average activity for the last six months was down 4.95% on previous six months and down 15.61% on same period a year ago. Relative to peak, volume of residential construction is now down 91.76%.

Per chart above, Value of Non-Residential construction declined to 53.8 in Q1 2012 from 62.4 9n Q4 2011, marking annual decline rate of 12.4%. Average six months activity is now down 5.53% on previous sexi months period and is down 5.83% on the same period a year ago. Relative to peak, non-residential construction value is down 56.37%.

Volume of Non-Residential construction activity dropped to 47.8 from 56.6 in Q4 2011. Annual rate of decline in Q1 2012 of -12% comes on foot of an annual increase of 3.3% in Q4 2011. 6mos average through Q1 2012 is now 5.43% below the previous 6mo period and is 4.31% below same period a year ago.

Chart below illustrates annual changes.

So the very same trends shown by the PMIs are present in the actual data. Once again, where's all that pinned up demand for new offices and facilities, for retrofits of facilities and for fit-outs that were supposed to come with the 'robust jobs creation' by the MNCs?

15/6/2012: Irish Construction PMIs - no sign of that MNCs jobs creation, again

What is going on in Irish construction sector, folks? The latest statements from the Irish development authorities and the Government and its 'experts' would make you believe that MNCs are killing each other trying to rush into building new space to house those thousands of workers that are allegedly being hired by them. Of course, we know the latter is balderdash (see here) when it comes to date through 2011, but can it be true for trends since 2011? After all, the Government aims to create tens of thousands new jobs in 2012 in the MNCs-sectors.

Ok, here are two posts on latest construction sector activity. First one on Construction Sector PMIs (courtesy of the Ulster Bank) and the second one on CSO data.


Take a look at the latest (May 2012) Construction Sector PMIs:

Suppose there was a rush in activity in MNCs-sectors. That would translate in some uptick in construction activity in Commercial sector. Right? In May 2012 Commercial sector Construction PMI stood at 46.8, which is (1) signal of rather significant rate of contraction m/m, (2) marks the lowest reading in the sub-index since November 2011, and (3) is worse than shallower rate of contraction signaled by 48.4 reading in April.

In fact, May 2012 reading is below 3mo and 6mo MA readings. So the rate of decline has accelerated in May compared to 3mo average and 6 mo average.

As dodgy as the activity is across all Construction-related sub-categories, it is the Commercial sub-sector activity that is signaling worsening of the already poor trend.

So, where are those thousands of new jobs going to be housed? Per Ulster Bank (emphasis mine): "Those panellists that recorded a decline in overall construction activity during the month mainly linked this to falling new business. New orders at Irish constructors decreased for the fifth successive month. Where firms were able to secure new business, they reported that this was often dependent on prices being reduced."

Now, you might say that there can be 'expectations' of future activity that are not fully reflected in the above figures. Yep. "Irish construction firms remained optimistic that activity will be higher in 12 months’ time than current levels, with sentiment improving from that registered in April. That said, positive expectations largely reflected the fact that a rise in activity is likely given the low levels currently being recorded." So, yes, firms are still giddy (they've been 'optimistic' now for many months, in fact over a year), but they are not giddy about hordes of new orders arriving. Instead they are optimistic about the prospect of continued attrition wiping out more of their competitors or that they might pick some jobs as the derelict unfinished sites start crumbling down in earnest. Nice one.

14/5/2012: Irish Construction Sector PMIs for April 2012

The Irish Construction PMI published by the Ulster Bank posted another massive fall, declining to 45.4 in April, from 46.7 in March. This is the sharpest rate of decline in the sector since October 2011. 

Breakdown by sub-sector:

Which means that

1. Housing sector activity is now sharper than overall activity, for the first time in seven months and is sharpest since September 2011

1. Commercial sector activity is on shallower decrease path in April than in March, but nonetheless, there is no improvement, despite the claims by our development agencies and reports by some real estate houses that MNCs are literally falling over each other trying to build massive new facilities. 

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.