New construction orders fall as cost increases bite
May 16, 2022
New orders in the construction sector fell last month, as a result of near-record cost increases, the latest construction purchasing managers index for Ireland from BNP Paribas Real Estate has found.
However, despite the depressed demand, purchasing, activity and employment all rose further, it found.
“The latest PMI confirms that construction activity continued to expand in April, but was variable by sector,” said John McCartney, Director and Head of Research at BNP Paribas Real Estate Ireland.
“The housing sub-index indicates that the strong residential activity that was seen in Q1 continued into April, despite the headwinds of supply chain disruption and increased costs. The commercial activity indicator also showed solid expansion,” Mr McCartney said.
“This is no surprise as the pipeline of office and logistics property to be delivered this year is at its highest since 2008. Civil engineering was notably weak, however, with the April reading showing an outright contraction in activity for the second successive month,” he added.
“This coincides with reports that spiking energy and materials prices were making contractors less willing to take-on public works contracts.”
Overall the headline index dropped marginally from 53.9 in March to 52.5 in April.
That represented the second consecutive month in which it fell, even though it indicated construction activity was growing.
“Some companies reported catching up on backlogs of work, but price rises and subdued demand acted to restrict growth,” BNP Paribas Real Estate Ireland said.
“Marked, but slower rises in activity on housing and commercial projects were recorded in April, while civil engineering activity decreased for the second month running,” it added.
Despite the drop in new orders, some respondents indicated that housing project demand continued to strengthen.
“Cost pressures were severe in April. Companies highlighted the second-fastest rise in input prices since the survey began in June 2000, just behind the record posted in October 2021,” it said.
“Energy and fuel were widely reported to have risen in price, with global inflationary pressures, raw material shortages and the conflict in Ukraine all key factors behind increasing cost burdens.”
Purchasing activity rose at the slowest pace this year because of the influence of rising costs and softened demand.
“Suppliers’ delivery times continued to lengthen markedly, with material shortages and the conflict in Ukraine disrupting supply chains,” BNP said.
“That said, the rate at which lead times lengthened was the least pronounced since August 2020,” it stated.