Euro area’s construction activity rises for second straight month in October, PMI index rises to 50.7

Construction activity in the euro area rose for the second straight month in October and grew at the most rapid pace in four months, owing to a return to growth of new orders. The IHS Markit construction PMI index rose to 50.7 from September’s 50.5.

Sector wise, the rise in activity growth was driven by a return to growth of residential construction. Commercial building activity, meanwhile, was unchanged from September, while civil engineering companies recorded a third straight monthly fall in output. Moreover, the pace of contraction in civil engineering activity was the most marked in five months.

A return to growth of new business supported the pick-up in construction activity. This is the first time it grew for the first time since June. The pace of rise was marginal in new work, but the most rapid in six months. Even if new business grew at a more rapid rate, employment growth in the euro area construction sector was modest and eased to the slowest since February 2017 in October. At the national level, this was mainly due to a slower rise in workforce figures in Germany.

Input buying at euro area construction companies rose at more rapid pace in the month. The rate of input buying accelerated for the second straight month to reach its most rapid in three months. More rapid rises in both Germany and France outweighed a stagnation in Italy. Meanwhile, inputs costs faced by construction firms rose noticeably at the beginning of the fourth quarter. The result extended the current run of rises to 44 months, although the pace of inflation eased to the slowest since October 2016.

In the meantime, vendor performance deteriorated in the euro area construction in October. However, suppliers’ delivery times lengthened to the least extent since the beginning of 2018, driven by an easing of capacity pressure in Germany and France.

Construction companies in the currency bloc stayed confident of a rise in activity in the year ahead. However, the extent of optimism was the lowest since September 2016. Confidence was underpinned by positivity in France and Italy, whilst Germany construction optimism was negative for the fourth straight month.