Output in the construction industry: Feb 2016

In February 2016, output in the construction industry was estimated to have decreased by 0.3% compared with January 2016. Both all new work and repair and maintenance reported decreases, falling by 0.2% and 0.5% respectively.

Within new work, there were decreases in all work types, except private new housing.

Within repair and maintenance (R&M) there were falls in all work types except public housing R&M.

Compared with February 2015, output in the construction industry increased by 0.3%. All new work was flat while there was an increase of 0.8% in repair and maintenance.

Comparing the 3 months, December 2015 to February 2016, with the previous 3 months, September 2015 to November 2015, construction output increased by 1.5%. All new work increased by 2.5% while there was a fall of 0.3% in repair and maintenance.

When comparing the 3 months, December 2015 to February 2016, with the same 3 months a year ago, construction output was estimated to have increased by 0.3%. All new work increased by 0.8% and repair and maintenance fell by 0.7%.

The only period open for revision is January 2016 which has been revised downwards by 0.2 percentage points from a fall of 0.2% to a fall of 0.4%. This was caused by the incorporation of late data. 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, February 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 (Jan to Mar) 1955. More information on these statistics can be found in the "Definitions and explanations" 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.

All work

In February 2016 all work:

• decreased by 0.3% compared with January 2016
• increased by 0.3% compared with February 2015
• in the 3 months (December 2015, January 2016, February 2016) compared with the previous 3 months (September 2015, October 2015, November 2015) construction output increased by 1.5%

Figure 1 shows the 2 main components of all work. The chart shows that the monthly series is fairly 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. In February 2016, all work decreased by 0.3% with both all new work and repair and maintenance contributing to the fall, decreasing by 0.2% and 0.5% respectively.

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 contraction in mid 2015 there has been underlying growth in recent months. After growth in infrastructure from late 2014 into early 2015, there has been a mixed picture since with December 2015 reporting the only period of month-on-month growth in the last 7 periods. Other new work remained fairly flat from 2012 and after growth in January 2016 there was a fall into February 2016.

Figure 3 looks at the 2 main components of repair and maintenance. The level of housing and non-housing repair and maintenance is similar and has remained fairly constant since the start of the time series. In February 2016 compared with January 2016 there was a decrease of 0.5% in all repair and maintenance with housing repair and maintenance the main contributor falling by 1.2% which was offset slightly by non-housing repair and maintenance which increased by 0.2%.

Summary of growth rates for all work types

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

• there were month-on-month falls in both all new work and repair and maintenance; the main contribution to the fall was repair and maintenance
• within all new work there were month-on-month falls in all work types except private new housing; the level of private new housing is the highest on record
• the year-on-year increase in all work was due to repair and maintenance while there was no growth in all new work

Figure 4 shows the contribution of each sector to output growth in the construction industry between February 2016 and January 2016. In February 2016, all work types except total housing and non-housing repair and maintenance contributed to the decrease in construction output. The largest downwards contribution came from private industrial work.

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 February 2016 was 73.6% of questionnaires, accounting for 83.6% 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 74 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.

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 4 (Oct to Dec) 2015 published on 31 March 2016.

The Quarterly National Accounts published on 31 March 2016 contained an estimate for quarterly construction of an increase of 0.3%. This estimate has not been revised within this release.

Construction output fell by 0.3% between January and February 2016, following output growth of -0.4% and 2.1% in January 2016 and December 2015 respectively. While construction output increased by 0.3% in February 2016 compared with the same month a year ago, growth during the 2015 calendar year was considerably stronger, as output expanded by 3.4% over this period. Growth for 2015 as a whole was more positive than it has been in recent months, and was above the pre-downturn annual average, albeit lower than the historically strong growth of 8.6% observed in 2010.

The main contributions to the decline in construction output in February 2016 came from a contraction in repair and maintenance of private housing which had a contribution of -0.4% on the month. Other downwards contributions came mainly from private industrial other new work and infrastructure of 0.3% and 0.2% respectively. This was partly offset by growth in construction output from private housing new work of 0.8%, and repair and maintenance of public housing of 0.2%. Private sector housing provided the largest contribution to construction output growth on the year.

The recent weakness in construction output has come alongside a continued price pressure in the housing market. The ONS House Price Index indicated UK house prices increased by 7.6% in the year to February 2016, down from 7.9% in the year to January 2016. Halifax reported that prices in the 3 months to February 2016 were 9.7% higher than in the same 3 months a year earlier, but unchanged from January 2016. Nationwide reported that UK house prices increased by 4.8% in the year to February 2016, up from 4.4% in the year to January 2016. The continued strength of house price inflation has coincided with a 5.5% increase in the seasonally adjusted estimate of the number of residential property transactions between January 2016 and February 2016. This was 16.1% higher compared with the same month last year according to HM Revenue and Customs data.

The increase in growth in construction output associated with new private housing activity is consistent with a rise in mortgage approvals for house purchases. According to the Bank of England’s Inflation Report there has been an increase in mortgage approvals for home purchases to around 74,000 a month on average in Quarter 1 (Jan to Mar) 2016, and much of this growth is coming from the buy-to-let sector. This could be partly due to the pre-announcement of the change in stamp duty which may have encouraged individuals to bring forward housing transactions. The RICS construction market survey is also consistent with the increase in new private housing activity, showing that in Quarter 4 (Oct to Dec) 2015 private housing sector continued to drive growth. The decline in construction output from private industrial work could be due to the deferrals of energy and commercial construction projects. According to the Bank of England’s Agents’ Summary of Business Conditions deferral or cancellation of energy-related projects had weighed on activity among some construction contacts.

GDP growth outpaced construction output growth between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015: GDP growth was 2.1% over this period while construction output growth was 1.0%. Whereas quarterly GDP growth remained broadly similar throughout 2015, varying between 0.4% and 0.6% growth, construction output growth has been more volatile, increasing by 1.9% in Quarter 1 (Jan to Mar) 2015 and contracting by 1.6% in Quarter 3 (July to Sept) 2015. Investment in dwellings increased by 1.5% in the fourth quarter of 2015 compared with the previous quarter, and this was largely driven by growth in investment in private sector dwellings, partly offset by a decline in public sector dwellings. This is consistent with the public-private make-up of housing activity in the construction industry and the measure of construction output, though there is likely to be a lag between construction output and the corresponding investment measurement of that activity.

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 1.9% and by 1.0% in the EU28 in January 2016 compared with December 2015. The Great Britain estimate for January 2016 showed that construction output decreased by 0.4%. 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 April 2016, showed provisional estimates of construction output decreased by 0.5% in February 2016 compared with January 2016 and increased by 10.3% compared with February 2015.

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.