The Irish construction sector saw a decline in employment last month, marking the end of a five-month period of job growth, according to the latest AIB Ireland Construction PMI report for February.
The drop comes at a time of growing concerns over housing output, with Central Statistics Office (CSO) figures showing a decline in new home completions last year. While some companies cited the completion of projects as the reason for reduced staffing, many builders have turned to subcontractors to meet demand.
Mixed Signals for the Sector
Speaking on RTÉ’s Morning Ireland, John Fahey, AIB Senior Economist, described the decline in employment as “disappointing” but noted that it followed six months of expansion.
“There are still some encouraging signs in the sector,” Fahey said. “Residential construction remains the strongest-performing category, continuing its six-month expansion, and in February, activity in this sector picked up slightly compared to January.”
He also pointed out that commercial construction rebounded in February after contracting in January, offering further positive indicators.
Rising Costs and Supply Chain Disruptions
Despite some bright spots, construction firms are facing rising costs and delays in material procurement.
AIB’s report highlighted that input costs rose at their fastest pace in nearly two years as suppliers hiked prices, with one-third of survey respondents reporting increased input costs. Subcontractor rates also climbed at a sharper rate.
Meanwhile, shortages of staff and materials at suppliers have caused longer delivery times and backlogs of work, further impacting construction schedules. The survey noted that the lead time for procuring and delivering materials to job sites was at its longest since January 2023.
Sector Still in Contraction, But Showing Improvement
The overall AIB Construction PMI index for February stood at 48.7, a slight improvement from January’s 48.2. While any figure below 50 indicates contraction, Fahey noted that the pace of decline had eased slightly.
“This is the fifth time in six months that the index has remained below 50, reflecting the muted operating environment for the sector,” he said.
From a sectoral perspective, residential construction was the best-performing of the three main categories, while commercial construction moved back into growth territory. However, civil engineering remained the weakest, continuing to contract.
Future Outlook and Uncertainty
Despite the current challenges, construction firms remain optimistic about the next 12 months. However, AIB’s Future Activity Index, which measures industry sentiment, declined for the second month in a row, falling below its long-term average.
“Some firms cited uncertainty around tariffs as a reason for their more cautious outlook,” Fahey noted.
Encouragingly, the new orders index, which signals future construction activity, returned to growth in February after a weather-related slowdown in January. Improved demand and greater capacity were cited as key factors driving this recovery.
As Ireland faces ongoing housing and infrastructure challenges, the performance of the construction sector in the coming months will be closely watched.
