14 Jan 2019
Irish Economy: Construction sector has a stronger finish to 2018
The latest Ulster Bank Construction PMI report shows that the rate of growth in activity in the sector quickened in December, with the headline PMI strengthening to 56.3 (a four month high) from the previous month’s 55.5 reading. The sector has now enjoyed 64 successive months of expansion.
The readings for the different segments of the construction sector tell a familiar story, with Housing (56.0) and Commercial (58.5) both advancing at a healthy clip while Civil Engineering (45.5) remained in less than splendid isolation for a fourth successive month as the one area that is seeing a contraction in activity.
Helped by increased market activity and better weather conditions, New Orders rose for a 66th consecutive month in December, albeit last month’s rate of growth was the joint-slowest in the past 14 months. This, in turn, unsurprisingly led to yet another uptick in employment and purchasing activity. There was unhelpful news on the margin front, with the rate of input price inflation quickening in December, with rising steel and insulation prices blamed for the latest rise.
Panellists remain very upbeat about the sector’s prospects, with 48% of firms expecting activity to increase in 2019. This positive sentiment is supported by expectations of stronger economic growth and increased capital investments. We think this optimism is well-founded, given that: (i) We see housing completions rising by about a quarter this year (to 24,000 units); (ii) Industry data point to buoyant RMI conditions; and (iii) There were a record 109 cranes over the Dublin skyline as of the start of 2019.
Weekend Brexit news
Over the weekend a number of MPs have indicated that they will support the British government in Tuesday’s ‘meaningful vote’ including four more Conservative MPs as well as John Mann from Labour. Regardless, the Prime Minister still looks on course for a heavy defeat, with the Sunday papers reporting that she could be on course to lose by between 100 and 200 votes. The rescheduled vote is set to be held at 7:00pm on Tuesday, though ahead of this there are set to be a number of fresh or revised amendments being laid in parliament today. With the vote having been delayed from its original 11 December date, the Evening Standard reported on Friday that some cabinet ministers now believe there is not sufficient time to pass Brexit legislation in time for the UK’s departure from the EU on 29 March. Further to this there are reports this morning that the UK government is well behind in its timetable even if Parliament works weekends and the February half term recess is cancelled. As such, some Cabinet members apparently expect that an extension of Article 50 will be required. A further headache for the UK government comes from reports in the Sunday Times that Downing Street now fears that rebel MPs are plotting to change Commons rules so that motions proposed by backbenchers take precedence over government business.
In the event of a defeat PM May is now required to return to the Commons on/by the 21 January (i.e three sitting days) to inform Parliament how the government plans to proceed. A defeat for PM May will also see a high probability of Labour leader Jeremy Corbyn calling a vote of ‘no confidence’ in the UK government, although such a motion would almost certainly fail. Where the Brexit path heads from here is still very uncertain. Pressure for a second referendum is likely to rise, although the PM remains opposed to such a path. This is also complicated by the fact that with only 78 days remaining until the UK’s exit, time does not permit this (a bare minimum of 4 months is seen as required to hold another vote), meaning an Article 50 extension would be required. If anything developments in Parliament last week have seen it gain greater control over the Brexit process, but given the continued differences amongst MPs it remains to be seen whether any particular package, aside from avoiding a no deal, can command a majority.
US this week
After a volatile start to 2019, last week saw a degree of calm return to markets, with the S&P 500 gaining over 2.5% on the week. The return of more positive sentiment has been driven by a strong US payrolls report for December and some reassuring words for markets by Fed Chair Jerome Powell. Some small positive steps on trade following the ministerial level US/China trade talks this week have also helped. These macro themes are set to dominate sentiment in the coming weeks and whilst there are no trade related events scheduled for this coming week there are a number of US data releases which will help shape the market view on the US economy and Fed policy. Key points to watch out for will be the two activity surveys (Empire State and Philly Fed), retail sales, Michigan consumer sentiment and various housing market indicators (Starts, Permits and the NAHB). One final point is that the partial US government shutdown continues (now 23 days), with little sign of progress towards an agreement and with President Trump continuing to demand $5.6bn for a border wall with Mexico. As a result there is a possibility of some US data releases being delayed (starts, permits and retail sales in particular).
Europe this week
The Euro area calendar is relatively quiet. Final estimates of December HICP inflation for the zone as a whole and a number of member states will be published during the week as well as Eurozone industrial production numbers on Monday. One event that may be worth keeping an eye on is President Draghi’s presentation of the ECB’s Annual Report and whether he remarks on the current state of the Euro area economy, where a number of recent indicators have pointed to a continuing soft patch.
10.00 EZ Industrial Productions