The construction sector continued to build momentum in February as activity and new orders rose sharply despite constrictions in the labour market and rising costs, according to the latest BNP Paribas Real Estate Ireland construction purchasing managers' index (PMI).
The seasonally-adjusted headline index rose from 56.1 to 58.4 last month, the tenth successive month in which construction activity has expanded and the quickest rate of increase recorded since last July.
Activity commercial construction similarly grew at its fastest rate for eight months, while housing activity growth hit a five-month high, and civil engineering activity increased solidly, albeit at a slower pace than in January.
"The February PMI shows that construction activity is now increasing at its fastest pace since last summer’s post-lockdown rebound," John McCartney, director and head of research at BNP Paribas Real Estate Ireland, said.
"Commercial building led-out for the third straight month. This is no surprise considering that the amount of logistics space under construction in Dublin has more than doubled in the last year, and that 2022 is set to be the biggest year for office completions since 2007.
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"However strong commercial activity has not crowded-out residential construction. Consistent with the sharp rise in commencements over the last year, the housing activity index accelerated to 58.5 in February, well above the no-change figure of 50. This continues an 11-month run of expansion in housing activity."
New business also picked up, reflecting rising client demand, with the rate of expansion in new orders at a six-month high, and purchasing activity increase in response to its highest level since July.
However, job creation slowed to its weakest level since April, with panellists reporting difficulty finding labour and that cost considerations limited the pace of jobs growth. Construction firms also found it harder to secure materials amid Covid disruption and increased demand on suppliers.
Vendor lead times increased substantially again in February, and material shortages lead to further steep rises in input costs, although the rate of inflation was unchanged from February., and subcontractor rates increased at the sharpest pace on record.
"Building companies have reported increasing costs for nearly two years, and the input price index remained elevated in February. Unfortunately, things may get worse before they get better," McCartney said.
"In addition to the impact of Brexit, Covid and the Ukraine conflict on materials costs, labour costs may also be set to rise. Official statistics show that wage pressures in the sector have remained well contained so far, despite 23,300 more construction workers being hired last year.
"However the February PMI shows that the pace of recruitment has slowed and some firms are now reporting difficulties in finding staff. This could ultimately flow through to wage inflation which would exacerbate existing cost pressures and have knock-on implications for viability," he added.
Despite cost challenges, improvements in demand, a strong pipeline of new work and expectations of a diminished impact of the COVID-19 pandemic resulted in confidence among constructors that activity will increase over the coming year.
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