Output in the Construction Industry: October 2015 and New Orders Quarter 3 (July to Sept) 2015

A short-term measure of output by the private sector and public corporations n the construction industry in Great Britain, including quartely data.

Nid hwn yw'r datganiad diweddaraf. Gweld y datganiad diweddaraf

Cyswllt:
Email Kate Davies

Dyddiad y datganiad:
11 December 2015

Cyhoeddiad nesaf:
15 January 2016

1. Main points

  • In October 2015, output in the construction industry increased by 0.2% compared with September 2015. All new work increased by 1.2% while all repair and maintenance decreased by 1.5%.

  • Within all new work, there were increases in private commercial (4.1%) and private new housing (2.3%) while public new housing, private industrial, public other new work and infrastructure reported decreases of 2.8%, 1.6%,1.2% and 1.1% respectively. Within the repair and maintenance (R&M) category, there were falls in all work types, housing repair and maintenance decreasing by 2.4% and non-housing repair and maintenance decreasing by 0.6%.

  • Compared with October 2014, output in the construction industry increased by 1.0%. All new work increased by 4.2% while there was a fall of 4.2% in repair and maintenance.

  • The second estimate of gross domestic product (GDP) for Quarter 3 (July to Sept) 2015 published on 27 November 2015 included an estimate of construction which showed a decrease in output of 2.2% in Quarter 3 (July to Sept) 2015. This estimate has been revised upwards by 0.3 percentage points to a fall of 1.9% 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.

  • New orders for the construction industry in Quarter 3 (July to Sept) 2015 were estimated to have increased by 0.8% compared with Quarter 2 (Apr to June) 2015 and showed no growth compared with Quarter 3 (July to Sept) 2014. There were increases in public other new work (10.8%), private commercial (4.1%) and all other work (2.7%) in Quarter 3 (July to Sept) 2015.

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2. About this release

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 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)” 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 Central Survey Unit.

As part of the process for re-designating construction statistics as National Statistics, an investigation of the sampling methods used during the production of the figures has shown that the parameters used in the treatment of outliers has resulted in more outliers being detected in the first quarter than at any other point. In reviewing this we have found that this outlier treatment can be improved. This has led to revisions in the data. A review of the seasonal adjustment parameters used in the compilation of output in the construction industry has also led to revisions in the data. More information on revisions and the impact on gross domestic product (GDP) are included in the Background notes section of this bulletin.

National Statistics status

On 11 December 2014, the UK Statistics Authority announced its decision to suspend 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 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 has today been published on our website (Guidance and methods page) and provides information on both our research into nominal data as well as construction price statistics.

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3. Output in the Construction Industry – October 2015

All work

In October 2015 all work:

  • increased by 0.2% compared with September 2015

  • increased by 1.0% compared with October 2014

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 with all new work outperforming repair and maintenance.

Figure 2 looks at the main components of all new work. There was sustained growth in all new housing from early 2013 until late 2014 and after several months of contraction in early 2015 there was a return to growth in September and October 2015. After growth in infrastructure from late 2014 there have been 3 consecutive months of falls from August 2015 to October 2015. Other new work remained fairly flat and after 3 months of contraction between July 2015 and September 2015 there was a return to growth in October 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 the start of the time series. After increases in housing and non-housing repair and maintenance in September 2015 there were falls in both components in October 2015. The chart shows that non-housing repair and maintenance has been gradually falling since the start of 2015.

Summary of growth rates for all work types

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

  • all work increased in October 2015 compared with September 2015 due to an increase in all new work

  • the month-on-month increase in all new work was due to increases in private new housing and private commercial work

  • all components of repair and maintenance showed a decrease in October 2015 compared with September 2015

  • the year-on-year increase in all work was due to all new work; there were increases in private new housing, infrastructure, private industrial and private commercial work

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4. Contributions to growth

Figure 4 shows the contribution of each sector to output growth in the construction industry between October 2015 and September 2015.

In October 2015, 2 of the main construction sectors saw an increase in output growth. The largest contribution came from private commercial work.

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5. The quality of the estimate of Output in the Construction Industry

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 2015 was 72.1% of questionnaires, accounting for 76.0% 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 70 months, however, users 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 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.

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6. Construction estimates in gross domestic product

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. This table should help to 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 second estimate of GDP for Quarter 3 (July to Sept) 2015 published on 27 November 2015.

The second estimate of GDP published on 27 November 2015 contained an estimate for quarterly construction of a decrease of 2.2%. This estimate has been revised within this release based upon updated survey responses and is now estimated to be a fall of 1.9%. This revision of 0.3 percentage points does not revise the growth rate of GDP.

Investigation of the sampling methods used during the production of the figures for the output in the construction industry release has shown that the parameters used in the treatment of outliers has resulted in more outliers being detected in the first quarter than at any other point. In reviewing this we found that this outlier treatment can be improved which leads to revisions across these 4 months. Estimates in this month’s release have also incorporated the results of a seasonal adjustment review which has also contributed to revisions in the data. More information on these revisions and the impact on GDP are included in the Background notes section of this bulletin.

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7. New orders for construction – Quarter 3 (July to Sept) 2015

It is estimated that the seasonally adjusted volume of all new orders increased by 0.8% between Quarter 2 (Apr to June) 2015 and Quarter 3 (July to Sept) 2015, to £12.6 billion. There were increases in the volume of new orders for public other new work and private commercial work while all other work types showed decreases.

The volume of new orders in new housing decreased by 4.0% between Quarter 2 (Apr to June) 2015 and Quarter 3 (July to Sept) 2015, with both public and private new housing decreasing, by 16.4% and 2.7% respectively. It should be noted that the weight of public new housing is small at only 8% of total new housing.

The volume of new orders in infrastructure decreased by 1.1% in Quarter 3 (July to Sept) 2015 compared with Quarter 2 (Apr to June) 2015, to a level of £3.1 billion. Comparing Quarter 3 (July to Sept) 2015 with the same period a year ago, infrastructure increased by 63.2%. This is a particularly volatile series due to the range of products such as electricity, gas, road, rail etc included within this type of work, therefore movements of this magnitude are not unusual.

The volume of all new orders in Quarter 3 (July to Sept) 2015 showed no growth compared with the same period a year ago. There were increases in infrastructure and private industrial work which were offset by decreases in total new housing, public other new work and private commercial work.

Users 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 users 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.

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8. Economic context

In October 2015, construction output grew by 0.2% compared with the previous month and by 1.0% over the year, ending the general downward trend in the annual growth series that began around the start of 2015. However, comparing the 3 months (Aug to Oct) with the preceding 3 months (May to July), output declined by 2.0%.

The monthly growth in construction output was driven by higher new work in the private sector, both housing (1.5%) and commercial (4.1%), while repair and maintenance contracted by 1.5%. Although positive, the annual rate of growth in private housing has seen a gradual decline since late 2014.

The Bank of England’s Agents’ Summary of Business Conditions for October has recently cited strong competition among mortgage lenders, an important indicator for household demand for housing. The report mentions that this has coincided with a supply response: an increase in the construction output of new housing. The Bank of England’s Inflation Report for November 2015 mentions that lower mortgage interest rates were a driving factor behind the change in housing demand – with rising mortgage approvals for both house purchase and re mortgaging, and hence increased net mortgage lending in September. This is reflected in house price inflation, with the ONS House Price Index stating that house prices increased by 6.1% in the year to September 2015, up from 5.5% in the year to August 2015.

Infrastructure work continues to show good growth, rising by 23.2% in October 2015 compared with a year earlier, although this was growth at a lower rate from April 2015’s record high of 41.6%. Infrastructure construction output has declined on average by 1.3% per month since April; aligning with the Agents’ summary which mentions reports of an easing in the pace of expansion of commercial development and infrastructure activity in October.

One area of particular note has been infrastructure spending in electricity works, which has seen a rapid increase in prices in recent years. Since 2009, the value of electricity works has increased by 760%, which is reflected in the infrastructure figures. Regionally, the value of infrastructure in London has declined by 42% since Quarter 4 (Oct to Dec) 2011, but this is being offset by growth in other areas in the UK – the biggest regional contributors were Scotland, which has seen a 287% increase in works value since 2012, and the East of England, with value increasing by 225% since 2008. Other regions are also seeing significant increases, such as the North East, with the value of infrastructure work increasing by 630% since 2008, indicating a steady build up in the area. On the other hand, water-related works have declined by 70% since 2011, while the construction of railways has also contracted – by approximately 47% since the end of 2012.

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9. International perspective

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) decreased by 0.4% in September 2015 and remained stable in the EU28 compared with August 2015. The Great Britain estimate for September 2015 showed that construction output remained flat. 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 1 December 2015, showed provisional estimates of construction output increased by 1.0% in October 2015 compared with September 2015 and increased by 13.0% compared with October 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.

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.Background notes

  1. What’s new

    We have been reviewing the way we calculate our construction statistics, as part of the process of re-designating them as National Statistics. We have been investigating nominal data and comparing against other data sources. An element which stood out was the level of construction output in the first 4 months of the year (January, February, March and April).

    A close investigation of the sampling methods used during the production of the figures for the output in the construction industry release has shown that the parameters used in the treatment of outliers has resulted in more outliers being detected in the first quarter than at any other point. In reviewing this we found that this outlier treatment can be improved which leads to revisions across these 4 months. Estimates in this month’s release have also incorporated the results of a seasonal adjustment review which has also contributed to revisions in the data.

    Impact on GDP

    As output in the construction industry is a data source for gross domestic product (GDP) when measured from the output approach, a revision to construction output can cause a revision to GDP, assuming all other components are equal. Table 4 shows the impact the revisions will have to GDP. The average revision to quarterly GDP growth is 0.0 percentage points with the average absolute revision being 0.06 percentage points.

    An article describing the impact of this change can be found on our website (Guidance and methods page).

    A work plan (104.4 Kb Pdf) detailing the development plan for construction statistics for the next 12 months has today been published on our website. The plan provides users with information on options for construction prices as well as our continued investigations into our nominal data.

  2. Revision policy

    Construction output conforms to the standard national accounts revision policy (41.6 Kb Pdf), which can be found on our website. In line with this, the construction output release for October 2015 contains revisions back to Quarter 1 (Jan to Mar) 2014.

    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.

    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.

  3. 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 new revision triangles 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 in the document “Revisions information in ONS first release”.

    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.

  4. Use of the data

    Output in the construction industry estimates are widely used both internally and externally and have been identified by legal requirement and user engagement surveys.

    The main users of data from the output of the construction industry dataset are:

    • United Kingdom national accounts
    • Eurostat, the statistical office of the European Union, in order to comply with statutory legislation on short-term business statistics (STS) - short-term business statistics provide information on the economic development of four major domains: industry, construction, retail trade and other services
    • industry analysts requiring estimates of the construction industry output of Great Britain
    • trade associations making UK and international comparisons and to forecast trends in the construction industry
    • other government departments including; the Department for Business, Innovation and Skills (BIS), HM Treasury (HMT), Department for Communities and Local Government (DCLG) and the Office for Budgetary Responsibility (OBR)

    As well as being a main indicator of the performance of construction companies, the results of the survey also contribute to the estimate of the gross domestic product of the UK, contributing approximately 5.9% of GDP.

    More information on the uses made of short-term economic statistics is available.

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

  6. Quality

    The latest quality and methodology report for the output of the construction industry estimates and quality and methodology report for new orders in the construction industry estimates can be found on our website.

  7. Relevant links

    Modelling construction statistics deflators (84.5 Kb Pdf)

    Impact of quarterly employment question on monthly survey response (163.7 Kb Pdf)

    Government Statistical Service (GSS) uncertainty guidance

    Annual construction publication construction Statistics, No. 16, 2015 Edition

    Analysis of the construction industry

    UK Statistics Authority assessment

    Disclosure control policy (121.5 Kb Word document)

    Types of Construction Work (75.5 Kb Pdf)

    Construction work plan (104.4 Kb Pdf)

  8. Further information

    Releases on construction output and employment prior to the transfer to ONS can be found on the BIS website.

  9. User engagement

    The user engagement section of our website contains results of the survey held in April 2011 regarding users' satisfaction and use of the new orders and construction output surveys.

    We published a summary of initial responses (110 Kb Pdf) to the Short-term Indicators National Accounts Survey on 9 February 2015.

  10. General information

    Interpreting the data

    When making comparisons it is recommended that users focus on chained volume measures or constant price (volume), seasonally adjusted estimates as these show underlying movements rather than seasonal movements.

    Construction output estimates are subject to revision because of:

    • late responses to the construction output survey
    • revisions to seasonally adjusted factors which are re-estimated every quarter

    annual updating of the inter-departmental business register (IDBR) that forms the basis of the sampling for the construction output survey; this occurs in April and can have an effect on the results published in May

    Definitions and explanations

    Definitions of terminology (39 Kb Word document) found within the main statistical bulletin are available.

  11. Code of Practice for Official Statistics

    National Statistics are produced to high professional standards which are set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs and are produced free from any political interference.

  12. Publication policy

    Details of the policy governing the release of new data are available from the Media Relations Office.

  13. Accessing data

    The Output in the Construction Industry statistical bulletin and relevant time series datasets are available to download free from the Office for National Statistics website at 9.30am on the day of publication.

    We allow a list of agreed officials to have access to data 24 hours before publication, which is available on the Output in the Construction Industry: Pre-Release page.

  14. Further information and user feedback

    As a user of our statistics, we would welcome feedback on this release, in particular on the content, format and structure. For further information about this release, or to send feedback on our publications, please contact us using the following information.

    Contacts:

    Media contact:
    Tel: Media Relations Office +44 (0)845 6041858
    Emergency on-call +44 (0)7867 906553
    Email: press.office@ons.gov.uk

    Statistical contact:
    Name: Kate Davies
    Tel: +44 (0)1633 456344
    Email: construction.statistics@ons.gov.uk

    Contact us:
    Tel: +44 (0)845 601 3034
    Email: info@ons.gov.uk

    Website

    Twitter

  15. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gov.uk

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Kate Davies
construction.statistics@ons.gov.uk
Ffôn: +44 (0)1633 456344