CONSTRUCTION JOBS were axed at a record pace in August and were behind last month's surge in unemployment benefit claimants, new figures confirm.

The purchasing managers' index (PMI) for the construction sector, published yesterday by Ulster Bank, shows that activity among building firms continued to contract in August.

Once again, the housing sector showed steeper falls in activity than the commercial and civil engineering sectors, where there were "tentative signs" that the decline is levelling off.

"Housing activity has to be curtailed to allow the supply overhang to be worked off and housing starts have, indeed, been minimal in recent months," said Pat McArdle, chief economist at Ulster Bank.

As workloads plummeted, construction firms told workers in record numbers that their services were no longer required after the traditional August builders' holidays.

Last month's Live Register of people claiming jobseekers' benefits increased by 9,100, even after normal seasonal variations were taken into effect.

According to data published last week, builders began work on just 510 new homes in the Republic last month. Although August is always a quiet month for the industry, this was just 30 per cent of the total begun in August 2007. The figure is one of the lowest in the last 12 years and industry observers say it indicates that the construction slump is now likely to continue into 2010.

However, the survey shows some good news for building firms, as cost inflation eased back.

"There was some welcome relief on the costs front with input prices reversing much of the previous month's rise. Steel and fuel prices fell, as did rates charged by sub-contractors," said Mr McArdle.

Overall, the PMI gave a reading of 33, which was higher than the 31.3 recorded in July, but still well below the 50 mark that separates expansion from contraction.

Anecdotal evidence suggested that the downturn in the economy affected sales, while firms cut back purchasing activity for the 16th successive month. The outlook for the next year remains negative, with 40 per cent of firms expecting even lower levels of activity in 12 months' time.

First-time buyers remain nervous about entering the market, fearing that further falls in house prices are to come, with the result that there is still an estimated 18 months' supply of unsold housing stock on the market.