A new survey shows that Irish construction firms are continuing to face challenging circumstances, but the rate of decline in overall activity in September was significantly less severe than seen in April and May.

The Ulster Bank Construction Purchasing Managers' Index, which tracks changes in total construction activity, rose to 47 in September from 44 in August - below the 50 no-change mark for the second month in a row. 

Index readings above 50 signal an increase in activity on the previous month and readings below 50 signal a decrease

Ulster Bank said today's survey suggested a move towards stabilisation in activity as the fall was much softer than those seen during the worst of the Covid-19 downturn earlier in the year.  

It said that while some companies reported that activity had increased in line with signs of improving demand, a number of firms indicated that the pandemic had caused activity to decline. 

While some firms reported increases in activity, orders and hiring in September, Ulster Bank said the overall results pointed to a second consecutive month of contraction across the three main subsectors - housing, commercial and civil engineering.

Today's survey showed that activity on commercial projects neared stabilisation at the end of the third quarter, following a sharp fall in August.

Housing and civil engineering activity decreased at marked rates, although the latter posted its slowest reduction since January, Ulster Bank noted.

Simon Barry, chief economist at Ulster Bank, said that the rate of decline in overall activity was significantly less-pronounced than seen in April and May.

He also said the pace of contraction did ease somewhat relative to August, helped by developments in commercial activity where respondents reported only a marginal drop. 

"However, construction firms  similar to their counterparts in manufacturing and services - reported that Covid-19 impacts continue to weigh on the sector, with the pandemic cited as a headwind in relation to trends in activity, new business and hiring, " Simon Barry said. 

The economist also said that supply chain disruption was evident in the latest results, noting that respondents experienced longer delivery lead times amid some reports of stock shortages at suppliers and difficulties in sourcing items.

This in turn contributed to a notable acceleration in input cost inflation which stood at its strongest since April 2019.  

"In addition to the pandemic, the anecdotes from the September results also cited Brexit as a cause for renewed concern," Simon Barry said.  

"These dual headwinds contributed to a notable deterioration in sentiment towards the outlook with - for the first time since May - more firms expecting activity in the year ahead to fall than rise," he added.