Output in the Construction Industry: November 2015

• In November 2015, output in the construction industry was estimated to have decreased by 0.5% compared with October 2015. All new work was the largest contributor to the fall, decreasing by 0.7%, with repair and maintenance (R&M) falling 0.2%

• Within new work, there were increases in public other (2.3%), private industrial (1.7%) and total housing (0.9%). However, these were offset by decreases in infrastructure and private commercial work of 4.3% and 1.5% respectively

• Repair and maintenance (R&M) decreased by 0.2% with decreases in both components of housing repair and maintenance; private falling by 1.3% and public by 0.7%. Non-housing repair and maintenance increased by 0.8%

• Compared with November 2014, output in the construction industry decreased by 1.1%. All new work increased by 1.3% while there was a fall of 5.1% in repair and maintenance. The main upwards contribution to all new work came from infrastructure which increased by 11.7%

• Comparing the 3 months, September 2015 to November 2015, with the previous 3 months, June 2015 to August 2015, construction output fell by 1.4%. All new work and all repair and maintenance decreased by 1.4% and 1.2% respectively

• When comparing the 3 months, September 2015 to November 2015, with the same 3 months a year ago, construction output was estimated to have decreased by 0.1%. All new work increased by 2.4% while repair and maintenance decreased by 4.3%

• The only period open for revision is October 2015, this estimate is unchanged. More information on revisions can be found in the background notes

Output is defined as the amount charged by construction companies to customers for the value of work (produced during the reporting period) excluding VAT and payments to sub-contractors.

Construction output estimates are a short-term indicator of construction output by the private sector and public corporations within Great Britain and are produced from a monthly survey of 8,000 businesses in Great Britain. The estimates are produced and published at current prices (including inflationary price effects) and at chained volume estimates (with inflationary effects removed) both seasonally adjusted and non-seasonally adjusted.

Chained volume measures are also described as volume. Construction output is used in the compilation of the output approach to measuring gross domestic product (GDP).

Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, November 2015 reference tables. In these tables, users will find chained volume estimates back to Quarter 1 (Jan to Mar) 1997, and monthly estimates back to January 2010. Current price non-seasonally adjusted data are available back to Quarter 1 (Jan to Mar) 1955. More information on these statistics can be found in the "Definitions and explanations (39 Kb Word document)" article.

The data published in this release cover construction estimates for Great Britain. Construction output estimates for Northern Ireland can be obtained from the Central Survey Unit.

National Statistics status

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction Price and Cost Indices due to concerns about the quality of these deflators. As a result the UK Statistics Authority announced its decision to suspend the designation of Output and New Orders as National Statistics in respect of the Code of Practice for Official Statistics.

We took responsibility for the publication of the Construction Price and Cost indices from the Department of Business Innovation and Skills (BIS) on 1 April 2015. Since this point we have worked towards creating an interim solution to measure output prices and replace the statistical models that had been used in the production of chained volume measures (CVMs) for output in the construction industry since Quarter 3 (July to Sept) 2014 and to provide an ongoing source of data from Quarter 1 (Jan to Mar) 2014 onwards. This interim solution was included in the data published in June 2015 for all periods from January 2014 onwards.

A work plan (104.4 Kb Pdf) for the development of construction price statistics was published on 11 December 2015 on our website and provides information on both our research into nominal data as well as construction price statistics.

All work

In November 2015 all work:

• decreased by 0.5% compared with October 2015

• decreased by 1.1% compared with November 2014

• in the 3 months (September 2015, October 2015, November 2015) compared with the previous 3 months (June 2015, July 2015, August 2015) construction output fell by 1.4%

Figure 1 shows the 2 main components of all work. The chart shows that since the series began in January 2010 the monthly path has been volatile. The early period shows that after a rise in output in early 2010, the level remained fairly consistent until late 2011 when output started to fall. Output increased steadily in 2013 and 2014, with all new work and repair and maintenance performing at a similar level, however, in late 2014 the 2 components started to move in opposite directions.

Figure 2 looks at the main components of all new work. There was sustained growth in new housing from early 2013 to late 2014, however, after a fall into 2015 there has been a return to growth in the last 3 months. After growth in infrastructure from late 2014 into early 2015, there have been 4 consecutive falls from August 2015. Other new work remained fairly flat from 2012 and after an increase in October 2015, fell again in November 2015.

Figure 3 looks at the 2 main components of repair and maintenance. The level of housing and non-housing repair and maintenance has been fairly consistent since 2010. In November 2015, housing repair and maintenance fell while there was an increase in non-housing repair and maintenance.

Summary of growth rates for all work types

Table 1 provides a summary of growth rates across the different types of construction work in November 2015. Some main points from this table are as follows:

• there were month-on-month falls in the growth rates for both all new work, and repair and maintenance; the main contribution to the fall was all new work

• the year-on-year decrease in all work was due to repair and maintenance; all work types except private housing within repair and maintenance reported decreases

• all work types except public housing, public corporations and private commercial work contributed to the increase in the year-on-year growth rate for all new work

Figure 4 shows the contribution of each sector to output growth in the construction industry between November 2015 and October 2015. In November 2015, infrastructure, private commercial and total housing repair and maintenance saw decreases in output. The largest downwards contribution came from infrastructure.

Output in the Construction industry estimates are produced from the Monthly Business Survey on the second Friday of the month, 2 months after the reporting month. Revised results, for previously published periods, are published in line with the national accounts revisions policy. More information about the data content for this release can be found in the background notes.

Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The response rate in November 2015 was 69.4% of questionnaires, accounting for 80.3% of registered turnover in the construction industry. Therefore the estimate is subject to revisions as more data become available.

The monthly output in the construction industry time series now spans 71 months, however, users should note that 60 months is the minimum time span recommended by Eurostat for seasonal adjustment. While the seasonal pattern is generally established after 60 months in a monthly time series, there is still potential for increased revisions until the seasonal pattern has matured.

All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. For construction output we publish sample and non-sample errors in Table 11 of the main reference tables. It should be noted that we are continually working on methodological changes to improve the accuracy of the construction output estimates. Progress on these can be found on the ONS continuous improvement page on our website.

A close investigation of the sampling methods used during the production of the figures for the output in the construction industry release showed that the parameters used in the treatment of outliers resulted in more outliers being detected in the first 4 months of the year (January, February, March and April) than at any other point. In reviewing this, we found that this outlier treatment could be improved. This led to revisions across these 4 months in the estimates published by us on 11 December 2015. Additionally, we incorporated the results of a seasonal adjustment review which also contributed to revisions in the data. Implementation of these improvements has resulted in an inconsistency between the annual non-seasonally adjusted and seasonally adjusted data. This is currently being reviewed.

Construction estimates are a main component of the output approach to measuring GDP along with the estimates of services, production and agriculture. As an aid to users, the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. It is anticipated that this table will inform users of the relationship between the individual components which comprise GDP output. The publication dates and the quarterly growths of the individual GDP components are shown below.

Each component of GDP has a weight within GDP based on its value in 2012. Construction has a weight of 59, which means that it is 59 parts of the 1,000 that make up total GDP.

To determine the effect each component has on GDP multiply the component growth by its weight in GDP.

An example using Quarter 2 (Apr to June) 2015 data:
Construction growth = 1.4
Weight in GDP = 0.059 (59/1000)
Effect on GDP = 1.4 * 0.059 = 0.08 or 0.1 to 1 decimal place (dp).

Revisions to components and the effect on GDP can be calculated using the same process. As a general rule there are no revisions to GDP when the component revisions are:

Index of Production (IoP) = between 0.3 and -0.3
Construction = between 0.9 and -0.9
Index of Services (IoS) = 0.0 (all values above or below 0.0 effect GDP due to the high weight of IoS in GDP).

Because;

IoP = 0.148*0.4 = 0.0592 or 0.1 to 1 dp
Construction = 0.059*0.9 = 0.0531 or 0.1 to 1 dp
IoS = 0.786*0.1 = 0.0786 or 0.1 to 1 dp

Table 2 shows the latest monthly and revised quarterly output figures that fed into the Quarterly National Accounts release for Quarter 3 (July to Sept) 2015 published on 23 December 2015.

The Quarterly National Accounts published on 23 December 2015 contained an estimate for quarterly construction of a decrease of 1.9%. This estimate has not been revised within this release.

Construction output in November declined by 0.5% compared to the previous month. The largest month-on-month falls were infrastructure and private commercial which fell by 4.3% (the fourth consecutive month of contraction) and 1.5% respectively. This is despite gradually increasing demand for commercial properties, particularly office space in the larger regional cities, as reported by The Bank of England’s Agents' Summary of Business Conditions, 2015 Q4.

Private industrial work grew by 1.7% on the month, behind public new work excluding infrastructure, which grew by 2.3%; the first monthly increase since July 2015.

Housing increased by 0.9%, though housing repair and maintenance decreased. The Bank’s Agents noted that social house building had slowed, partly attributed to increased uncertainty around the sector. However, student housing remained buoyant. The growth in house building matches October’s house price inflation as reported by the ONS, where the HPI grew by 0.8% over the month.

Compared to the same month a year ago, output fell by 1.1%, undoing last month’s gains, and continuing the moderation in growth seen since early 2014. On average, the year-on-year rate has declined since by an average of 0.6%. The largest annual falls over the month were seen in the public sector: public housing – both in new works (-21.6%) and repair and maintenance (-6.9%), and other public works excluding infrastructure (-7%). The corresponding areas in the private sector saw gains: private housing (3.1% – the 32nd consecutive week of growth), its repair and maintenance (1.3%), and private industrial new work, excluding infrastructure (18.5%).

Although public housing has declined for most of 2015, the private sector has been in expansion over the period, reflected in several external indicators. The Bank of England’s Credit Conditions Survey 2015 Q3 states that demand for secured lending increased significantly in 2015 Q3 – particularly for buy-to-let lending; which was mirrored in the Bank’s Agents' Summary of Business Conditions, 2015 Q4. HMRC’s Monthly Property Transactions which reports that the number of residential property transactions increased by 3.0% over the year; while the ONS House Price Index states that UK house prices increased by 7.0% in the year to October 2015 – which outpaces the annual rate of growth for housing. Coupled with the increasing availability of credit for lenders, the inflationary figures are indicative of both stronger demand pressures and incapacity of supply to fulfil demand.

In the longer-term, almost all measures have seen a downward trend which is reflected in overall output. Those related to housing have seen the greater decreases over this period, at a per annum average decline of 3.3% and 1.5% for public and private housing works respectively, and 0.9% and 0.7% for repair and maintenance works for public and private housing. Infrastructure works has shown the steepest decline, at an average of 4.3% per annum, although the trend started later than for other sub-sectors (May 2015 rather than January 2014) and thus may be exhibiting a degree of lag in following the direction of the other sub-sectors. Private new works excluding infrastructure seem to be showing a mixed effect: although the average annual trend for commercial works has declined by 0.6% since September 2013 (the earliest trend among the measures), industrial works show no discernible negative decline (although is alone in this).

Output in the construction industry follows the Eurostat Short Term Statistics (STS) regulation for production in construction. Before any comparisons are made with the euro area or EU28, it is worth noting that the UK is the only member state to follow the A method for compiling production in construction statistics.

The latest release of production in construction showed that construction output in the euro area (EA19) increased by 0.5% and by 0.1% in the EU28 in October 2015 compared with September 2015. The Great Britain estimate for October 2015 showed that construction output increased by 0.2%. It should be noted that an accurate comparison cannot be made as Eurostat data are calculated on a 2010 = 100 basis, while Great Britain data are calculated on a 2012 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place published on 4 January 2016, showed provisional estimates of construction output decreased by 0.4% in November 2015 compared with October 2015 and increased by 10.5% compared with November 2014.

International comparisons

International construction comparisons are compiled by Eurostat. The estimates produced in this bulletin are included in these comparisons. Further information can be found on the Eurostat web page.