10 Jun 2019

Irish Economy: Construction PMI cools to a four month low

The latest Ulster Bank Construction PMI for Ireland reveals that while the rate of growth in activity remains brisk, it has cooled to a four month low. The headline PMI was 54.9 in May, down from April’s 56.6 reading. The index has, however, recorded 69 successive above-50 readings.  


As has been the case for some time, growth remains concentrated in the Housing (58.3) and Commercial (53.1) segments, with Civil Engineering (46.3) recording its ninth successive contraction. In all three monitored groups, the pace of expansion slowed relative to April’s outturn amid slower demand (New Order growth slipped to a five month low, but remains positive).


On the margin front, there was a helpful moderation in input cost inflation to the slowest since September 2016, although firms reported upward pressure on steel, insulation and paint prices.
Notwithstanding the softening in demand, firms remain upbeat on the sector’s prospects, as evidenced by a 69th successive above-50 reading for the Employment index, while optimism among panellists improved to a three month high in May. Some 39% of firms expect activity to increase over the coming year.


While all three Irish PMIs have shown signs of moderation in recent months, they remain in positive territory. This is consistent with our view that headline growth will slow to 4.3% this year from 2018’s 6.7%. On the one hand, our forecast GDP outturn for 2019 would represent the weakest pace of annual growth since Ireland exited the EU/IMF programme in 2013, but on the other hand it will still leave Ireland as one of the fastest growing developed economies in the world.


UK this week

The major UK focus this week is set to be on the Conservative Party leadership contest. At the current count there were 11 candidates vying for the leadership, with nominations set to close today. However that number will start to be whittled down on Thursday when the first ballot is set to take place. Subsequent ballots are scheduled for 18, 19 and 20 June, with the aim of reducing the list down to two candidates to be put to the Tory party membership.


At the time of writing Boris Johnson was the bookmakers’ favourite (4/5), followed by Michael Gove (7/1). The overall aim is for a new Tory leader and therefore new Prime Minister to be installed by the summer recess in late July. There are a number of notable releases this week, including UK Labour market figures which will be published on Tuesday.



Euro area data this week will include industrial production figures and final HICP estimates from various member states. Note that the only major central bank decision due during the week is from the Swiss National Bank (SNB).  Trade worries were a key factor behind Thursday’s ECB decision to push back its guidance on interest rates, which are now expected to remain at their present levels at least through the first half of 2020.


US & ROTW this week

On the international stage, trade tensions between the US and various countries continues to dominate market sentiment, where short term interest rate markets have evolved to price in the prospect of almost three Federal Reserve rate cuts this year. However the bigger question is over US-China trade relations. Since talks broke down in May there have been no trade discussions between the two, whilst relations have deteriorated further. The G20 will however provide the platform for a meeting between US Treasury Secretary Mnuchin and a Chinese delegation, which could give some valuable insight into whether a pivotal meeting between Presidents Trump and Xi might take place at the G20 Leaders’ Summit on the 28-29 June.


Key US releases this week will consist of CPI inflation, retail sales, industrial production and Michigan consumer sentiment.

May US payrolls 

US non-farm payrolls rose by 75k in May well below consensus (+175k) and own forecast (+205k).


Revisions to the previous two months were down by a net 75k. The headline unemployment rate remained steady at 3.6% (consensus 3.6%, Investec 3.7%), while the U6 ‘underemployment’ measure fell to 7.1% from 7.3%. But that was a rare display of strength. Importantly, annual hourly earnings growth nudged down to 3.1% from 3.2% (consensus 3.2%), while weekly hours and overtime hours remained steady at 34.4 hrs and 3.4 hrs, respectively.


The participation rate held steady at 62.8%. This will add to a handful of releases over the past week or two which has questioned the degree of momentum behind the US economy. Markets’ reaction was unequivocal -  with USD softer ($1.1300 vs the EUR and $1.2710 against the GBP); 10y Treasury yields have slipped to 2.06%; interest rate markets have rallied and are now a shade away from fully pricing in three 25bp cuts from the Fed this year; and US equity futures are marginally lower.


Economic Releases

UK        9.30    Monthly GDP
                        Industrial production
                        Manufacturing output
            17.00   Conservative leadership nominations close
CH                   Trade balance