Construction output in Great Britain: Oct 2016 and new orders July to Sept 2016

In October 2016, construction output was estimated to have decreased by 0.6% compared with September 2016. All new work decreased by 0.9%, with the largest downward contribution coming from infrastructure, while all repair and maintenance showed no growth.

Compared with October 2015, construction output increased by 0.7%. All new work increased by 2.9% with repair and maintenance falling by 3.2%. Within all new work total new housing was the biggest upwards contribution with an increase of 12.6%.

The underlying pattern as suggested by the 3 month on 3 month movement decreased by 0.6%. All new work increased by 0.1% with repair and maintenance falling by 1.9%.

There was an upwards revision of 0.3 percentage points to construction output in Quarter 3 (July to Sept) 2016 to a fall of 0.8%, this has no impact on GDP to 1 decimal place.

New orders for the construction industry in Quarter 3 2016 were estimated to have decreased by 2.4% compared with Quarter 2 (Apr to June) 2016. Public other new work fell by 24.8% while infrastructure increased by 22.4%.

In Quarter 2 2016, the level of new orders was the highest since Quarter 2 2009 at £13.4 billion and despite the fall into Quarter 3 the level of new orders remains high at £13.1 billion.

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Chained volume measures of new orders

Following the latest meeting of the Consultative Committee for Construction Industry Statistics in November, we have agreed to introduce chained volume measures of new orders statistics, ensuring consistency in reference years with output in the construction industry. These will be introduced in the next release of new orders data on 10 March 2017.

The Second estimate of UK Gross Domestic Product (GDP) for Quarter 3 (July to Sept) 2016 published on 25 November 2016 included an estimate of construction that showed a decrease in output of 1.1% in Quarter 3 2016. This estimate has been revised upwards by 0.3 percentage points to a decrease of 0.8% in this release. This has no impact on GDP to 1 decimal place. More information on revisions are included in the background notes section of this bulletin.

The release for October 2016 and new orders Quarter 3 2016 has a revision period back to Quarter 1 (Jan to Mar) 2015. Revisions in this release were caused by the incorporation of late data and new seasonally adjusted estimates. 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 private sector and public corporations within Great Britain. Output 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, October 2016 datasets. In these tables, you 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 1955. More information on these statistics can be found in the “definitions and explanations” section in the background notes.

The data published in this release cover construction estimates for Great Britain. Construction output estimates for Northern Ireland can be obtained from the Department for the Economy website.

National Statistics status

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction Output and New Orders as National Statistics due to concerns about the quality of the Construction Price and Cost Indices used to remove the effects of inflation from the statistics.

We took responsibility for the publication of the Construction Price and Cost indices from the former Department of Business, Innovation and Skills on 1 April 2015, introducing an interim solution for measuring output prices in June 2015 for all periods from January 2014 onwards. We are currently developing a long-term solution for the deflation of construction statistics.

In October 2016 all work:

• decreased by 0.6% compared with September 2016
• increased by 0.7% compared with October 2015
• in the 3 months (August 2016, September 2016 and October 2016) compared with the previous 3 months (May 2016, June 2016 and July 2016) all work decreased by 0.6%

Figure 1 shows the monthly path for all work is fairly volatile; the 3 month on 3 month index smoothes this volatility and provides a picture of the underlying pattern within the construction industry.

In October 2016, there was a decrease in output of 0.6% compared with the previous month in all work, while there was also a fall of 0.6% in the rolling 3 months of August to October 2016 compared with the previous rolling 3 months of May to July 2016.

Figure 2 shows the main components of all work; all new work and repair and maintenance. Again this shows that the monthly path is volatile and is dominated by new work. Despite an initial rise in 2010, all work remained at a consistent level to late 2011, when output started to fall.

Output remained fairly static during 2012, before increasing steadily in 2013 and 2014, with all new work and repair and maintenance contributing to overall growth. However, towards mid-2014, new work continued to increase while repair and maintenance remained fairly flat.

From late 2014 onwards, the overall picture is relatively flat as a result of new work increasing at a slower pace and becoming almost flat and the slow contraction in repair and maintenance. In October 2016, all work decreased by 0.6%; new work was the largest contribution to the fall, decreasing by 0.9% while there was no growth in repair and maintenance.

Figure 3 looks at the 3 main components of all new work. There was sustained growth in all new housing from early 2013 to late 2014, followed by a mixed picture with periods of growth and contraction in 2015 to mid-2016. In more recent periods there has been growth in new housing, with October 2016 showing an increase of 1.7% compared with September 2016. The year-on-year picture remains strong, with October 2016 increasing by 12.6% compared with October 2015, which is the 11th consecutive period of growth.

Infrastructure shows volatility since the start of the monthly series in January 2010, however, due to the range of products that are included within this work, large movements are not unusual. In October 2016, there was a decrease of 4.1% compared with September 2016 and a fall of 11.3% compared with October 2015.

The level of other new work decreased between late 2010 and early 2012 but has remained relatively flat since. There was a decrease of 1.5% in October 2016 compared with September 2016 and an increase of 3.0% compared with the same period last year.

Figure 4 looks at the 2 components of total new housing. Private new housing is the main contributor for the overall trend in total housing, accounting for approximately 87% of all new housing (based on October 2016 data).

Private new housing reported an increase of 2.4% in October 2016 compared with September 2016 while public new housing fell by 3.0%. Due to the small weight of public new housing, the decrease did not have a large impact on the overall growth of new housing, which increased by 1.7%.

On the year, there were increases in both public and private new housing of 4.4% and 13.9% respectively compared with October 2015. This was the 43rd consecutive period of year-on-year increases in private new housing.

Figure 5 looks at the 2 main components of all repair and maintenance. In the early part of the time series, housing repair and maintenance performed at a higher level than non-housing repair and maintenance.

In October 2016, all repair and maintenance showed no growth compared with September 2016. Housing repair and maintenance decreased by 1.4%, which was offset by an increase of 1.6% in non-housing repair and maintenance.

Compared with the same period a year ago, there was a decrease of 3.2% in all repair and maintenance; with housing and non-housing repair and maintenance decreasing by 5.1% and 1.1% respectively. This is the sixth consecutive period of year-on-year contraction in housing repair and maintenance.

Table 1 provides a summary of growth rates across the different types of construction work in October 2016. Some main points from this table are as follows:

• all new work fell 0.9% in October 2016 compared with September 2016; while there was growth in private housing and private industrial new work, this did not outweigh the falls seen in the other 3 new work types

• repair and maintenance showed no growth over the same period, with the rise in non-housing R&M negating the fall seen in housing R&M

• there was a year-on-year increase in all new work while repair and maintenance decreased

• private new housing was the only work type to report growth in all categories

Figure 6 shows the contribution of each sector to output growth in the construction industry between October 2016 and September 2016.

In October 2016, there were decreases in all work types except private housing and non-housing repair and maintenance. 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 October 2016 was 67.7% of questionnaires, accounting for 81.1% 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 82 months, however, you should note that this 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 Output in the construction industry dataset. 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.

Construction estimates are a main component of the output approach to measuring GDP, along with the estimates of services, production and agriculture. To help you, the short-term economic indicator releases that directly feed into GDP include an additional table of the GDP components. This table should help to inform you 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 in Table 3.

Each component of GDP has a weight within GDP based on its value in 2013. 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 1 (Jan to Mar) 2016 data:
Construction growth equals negative 0.3
Weight in GDP equals 0.059 (59 divided by 1,000)
Effect on GDP equals negative 0.3 multiplied by 0.059 equals 0.02 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) equals between 0.3 and negative 0.3
Construction equals between 0.9 and negative 0.9
Index of Services (IoS) equals 0.0 (all values above or below 0.0 affect GDP due to the high weight of IoS in GDP)

Because:

IoP equals 0.146 multiplied by 0.4 equals 0.0584 or 0.1 to 1 dp
Construction equals 0.059 multiplied by 0.9 equals 0.0531 or 0.1 to 1 dp
IoS equals 0.788 multiplied by 0.1 equals 0.0788 or 0.1 to 1 dp

Table 2 shows the latest monthly and revised quarterly output figures that fed into the second estimate of GDP for Quarter 3 (July to Sept) 2016 published on 25 November 2016.

The second estimate of GDP published on 25 November 2016 contained an estimate for quarterly construction of a decrease of 1.1%. This estimate has been revised upwards by 0.3 percentage points in this release to a decrease of 0.8%. This has no effect on GDP to 1 decimal place.

Figure 7 shows quarterly revisions between latest and previously published estimates of construction output. Quarter 1 (Jan to Mar) 2015 is the earliest period open for revision in this release.

In Quarter 3 (July to Sept) 2016, the volume of all new orders:

• decreased by 2.4% compared with Quarter 2 (Apr to June) 2016
• increased by 5.5% compared with Quarter 3 (July to Sept) 2015

There were decreases in the volume of new orders for public new housing, public other new work and private commercial work while all other work types showed increases.

The volume of new orders in new housing increased slightly between Quarter 2 2016 and Quarter 3 2016 by 0.1% while there was an increase of 21.7% compared with the same quarter last year. The level of new housing is at its highest since Quarter 4 (Oct to Dec) 2013.

Private new housing increased by 0.2% compared with Quarter 2 2016 to a level of £3.5 billion; this is the highest level since Quarter 3 2007. Compared with the same period a year ago private new housing increased by 17.8%.

Public new housing decreased by 0.6% compared with Quarter 2 2016 and increased by 64.6% compared with Quarter 3 2015. It should be noted that the weight of public new housing is small at only 11% of total new housing (based on Quarter 3 2016 data).

The volume of infrastructure new orders increased by 22.4% in Quarter 3 2016 compared with Quarter 2 2016. This is due to an increase in orders for the introduction of smart motorways. There was no growth compared with the same period a year ago. Infrastructure is a particularly volatile series due to the range of products such as electricity, gas, road, rail included within this type of work, therefore large movements are not unusual.

Within other new work, there were quarter-on-quarter decreases in public other new work and private commercial work of 24.8% and 9.9% respectively, while private industrial work increased by 4.4%.

The volume of all new orders in Quarter 2 2016 increased by 5.5% compared with the same period a year ago. There were increases in all work types except public other new work and private industrial work.

You should note that there is a time lag between how long an order turns into output (if at all) and therefore an assumption that improved new orders data will result in an improved output picture is a difficult assumption to make.

Further, you should note that there may be some discontinuity in the data around Quarter 3 (July to Sept) 2013 where the Barbour ABI data were used for the first time to compile these statistics.

The monthly estimate of construction output fell by 0.6% in October 2016, following a rise of 0.9% in September 2016. Recent weakness in construction figures means that October’s output is some way below the average level seen across the first half of 2016, but remains above the average level of 2015. The largest positive contribution this month came from new private housing (plus 0.4 percentage points on the month) while the largest negative contribution came from infrastructure (minus 0.5 percentage points).

The drop in construction output this month differs from the Markit/CIPS Construction Purchasing Managers’ Index for October 2016, which recorded a slight expansion in construction activity. However, the Markit/CIPS measure cited an increase in residential work driving activity, which corroborates the growth of private housing output.

Over the quarter, the RICS UK Construction Market Survey for Quarter 3 (July to Sept) 2016 did report positive growth, albeit at a much slower rate than that seen over the last 3 years. Financial constraints were the most cited impediments to growth, followed by planning or regulatory delays and skills shortages.

Housing

Construction of new housing output rose in October 2016 (by 1.7% compared with September 2016), while HM Revenue and Customs UK Property Transactions Statistics reported a rise of 1.0% in the number of residential property transactions between September 2016 and October 2016, suggesting a rise in housing demand.

In addition, the ONS House Price Index for September 2016 reported a 7.7% increase in house prices in the year from September 2015, continuing the strong growth seen since the end of 2013. The average house price was unchanged from the previous month. More recently, Nationwide and Halifax house price data reported annual house price growth in the year to October 2016 of 4.6% and 5.2% respectively, an easing of house price growth compared with recent months.

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 published by Eurostat on 17 November 2016 for September 2016 showed the seasonally adjusted production in the construction sector in both the euro area (EA19) and EU28 when compared with August 2016. 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 2013 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place was published on 1 December 2016. They include the total dollar value of construction work done in the US.

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.

1. Methods

Our monthly construction output survey measures output from the construction industry in Great Britain. It samples 8,000 businesses, with all businesses employing over 100 people or with an annual turnover of more than £60 million receiving a questionnaire by post every month.

Estimates are based on output data collected through the monthly Construction Output Survey. Response rates at the time of publication are included for the current month and the 3 months prior. The response rates for those historical periods are updated to reflect the current level of response, incorporating data from late returns. There are 2 response rates included, with 1 percentage for the amount of turnover returned and the other percentage for the amount of questionnaire forms.

Since the 1950s, new orders in construction data had been collected from a sample survey of businesses; originally monthly and then quarterly. There were some known quality issues with the survey data as:

• the coverage of the survey was unknown
• new orders allocated to regions were not always accurately recorded

The new orders data are supplied under contract by Barbour ABI. Barbour ABI provide us with improved coverage and regional splits of new orders in construction data.

2. Quality

The latest Quality and Methodology report for the Output of the Construction Industry estimates can be found on our website.

The latest Quality and Methodology report for New Orders in the Construction Industry estimates can be found on our website.

These contain important information on:

• the strengths and limitations of the data and how it compares with related data
• users and uses of the data
• how the output was created
• the quality of the output including the accuracy of the data

3. Revision policy

Construction output conforms to the standard National Accounts Revisions policy, which can be found on our website. In line with this, the construction output release for October 2016 contains revisions back to January 2015.

Figures for the most recent months are provisional and subject to revision in light of (a) late responses to the Monthly Business Survey MBS (b) revisions to seasonal adjustment factors which are re-estimated every period and (c) improved treatment of outliers.

New orders data has a revision period back to Quarter 2 (Apr to June) 2013 and is not covered by the National Accounts Revisions Policy due to not directly feeding the national accounts.

4. Revisions

One indication of the reliability of the main indicators can be obtained by monitoring the size of revisions. Analysis of the previously published quarterly seasonally adjusted chained volume measure series has shown that revisions to construction data are small. Generally these quarterly revisions are less than 1 percentage point when compared with the final revised period 5 quarters after initial publication. This indicates that the published estimates are a reliable snapshot of the output in the industry at the date of publication.

The size and pattern of revisions for both output and new orders data which have occurred in the open period can be found in the 1 month and 3 month revisions triangles datasets on the construction web page. Please note that these indicators only report summary measures for revisions. The revised data may be subject to sampling or other sources of error. Details about this revisions material can be found on our revisions page.

It should be noted that due to seasonal adjustment taking place on a short span of data points used to interpret the seasonal effects, there is potential for increased revisions until the seasonal pattern is established within the time series. The seasonal pattern is generally established after 60 months in a monthly time series.

Please note that a monthly seasonally adjusted chained volume series is not available pre-2010. This is due to monthly data not being available for this period. These data are a requirement for creating previous year’s prices from which chain-linked volume measures are created:

• the coverage of the survey was unknown
• new orders allocated to regions were not always accurately recorded

The new orders data are now supplied under contract by Barbour ABI. Barbour ABI provide us with improved coverage and regional splits of new orders in construction data.