Eurozone July construction activity contracts sharply - PMI

Construction activity in the eurozone entered a "sharp and accelerated decline" last month according to key survey data released on Friday.

The S&P Eurozone Construction purchasing managers index (PMI) - a seasonally adjusted index tracking monthly changes in total industry activity - dropped to 43.5 from 44.2 month on month - in the sharpest contraction seen in the year to date, and extended the current sequence of reduction to 15 months.

A survey reading of 50 separates expansion from contraction.

The reduction was underpinned by a sustained and rapid fall in new order intakes. As a result, firms cut back on their buying activity again, and downwardly adjusted their workforce numbers, S&P said.

Weaker demand for inputs contributed to the most pronounced improvement in suppliers' delivery times since March 2009, which in turn helped to ease cost pressure. Notably, input costs increased at only a fractional rate.

The sustained decline in construction activity coincided with a further substantial deterioration in customer demand. New business fell for the sixteenth successive month in July. Although easing to the weakest since March, the rate at which sales declined remained historically sharp.

S&P said survey respondents "often mentioned that a weaker economic environment, greater market uncertainty and higher interest rates had weighed on sales".

German construction firms reported the fastest contraction in new work, followed by France, although in both cases the rates of reduction softened from June. Construction companies in Italy meanwhile saw a slight rise in new orders for the second month in a row.

"The latest HCOB PMI data indicate that the Eurozone construction sector is in deep contraction. Construction activity has declined at an accelerated pace in all three sectors - housing, commercial and civil engineering. The housing sector in particular stands out negatively, weakening especially in Germany and France. In Italy, on the other hand, there is only a slight contraction," said Norman Liebke, Economist at Hamburg Commercial Bank.

Reporting by Frank Prenesti for Sharecast.com