«Output in the Construction Industry, July 2014 and New Orders Q2 2014 Coverage: GB Date: 12 September 2014 Geographical Area: Region Theme: Business ...»
Output in the Construction Industry,
July 2014 and New Orders Q2 2014
Date: 12 September 2014
Geographical Area: Region
Theme: Business and Energy
• This statistical bulletin provides users with the latest estimates of output in the construction
industry for July 2014 and for New Orders for Q2 2014. Output is defined as the amount charged
by construction companies to customers for value of work (produced during the reporting period) excluding VAT and payments to sub-contractors.
• There was estimated to be no growth in the seasonally adjusted estimate of construction output in July 2014 when compared with June 2014. By type of work there were however, variations with increases in infrastructure (3.3%), private commercial (1.0%) and total housing (0.8%); largely offset by a decrease in non-housing repair and maintenance (4.1%). Despite this decrease in June 2014 non-housing repair and maintenance was estimated to be at its highest level since the monthly series began in January 2010.
• The second estimate of GDP for Q2 2014 published on 15 August 2014 included an estimate of construction which showed no growth. For this publication, in line with national accounts revisions policy, no periods prior to July 2014 were open for revision, hence this estimate is unchanged.
• In July 2014, output in the construction industry showed continued year-on-year growth for the 14th consecutive month, increasing by 2.6%. However, this growth was the weakest since November 2013 (1.5%).
• New orders for construction in Q2 2014 was estimated to be 3.8% higher than in Q1. There were increases in infrastructure (20.8%), private commercial (9.6%), public new housing (7.3%), and public other new work (0.3%). Private new housing and private industrial fell by 6.3% and 1.9% respectively. Despite these falls the levels of these series were still higher than the downturn in this series which began in Q1 2009.
Office for National Statistics | 1 Output in the Construction Industry, July 2014 and New Orders Q2 2014 | 12 September 2014 Introduction 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 and non-seasonally adjusted.
Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, July 2014 reference tables. In these tables, users will find chained volume estimates back to Q1 1997 and monthly estimates back to January 2010. Current price non-seasonally adjusted data are available back to Q1 1955. More information on these statistics can be found in the ‘Definitions and explanations’ section in the background notes.
It should be noted that due to seasonal adjustment taking place on a short span of data points used to interpret the seasonal effects (55 months), 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.
New orders in the construction industry estimates are a short term indicator of construction contracts for new construction work awarded to main contractors by clients in both the public and private sectors within the UK. The estimates are produced and published both seasonally and nonseasonally adjusted at current prices (including inflationary price effects) and at constant prices (with inflationary effects removed). Since Q2 2013 these data have been supplied by Barbour ABI. Further details can be found in the background notes section of this bulletin.
Detailed estimates on new orders are available to download in the New Orders in the Construction Industry, Q2 2014 reference tables. In these tables, users will find volume estimates back to Q1 1964, current price data are also available for this time period. Value data is available for a more granular level of type of work back to Q1 1985 along with regional data for the main types of work.
Construction output is a component in the production approach to measuring gross domestic product (GDP), accounting for 6.3% of total GDP, based on 2010 weights. Due to the high value of construction in GDP and its stand alone status as a key economic indicator, the construction estimate is widely used by economists and industry specialists as an aid to economic interpretation and forecasting.
Construction output in July 2014 was 2.6% higher than in the same month a year earlier. On a monthly basis construction output growth was flat (0.0%). Monthly outturns can be volatile and despite the subdued outturn for July, the annual rate shows strong growth for construction output.
This is largely consistent with the performance of the broader UK economy and external economic indicators over this period.
The largely positive picture of construction sector output over the last year is reflected in a range of external surveys. The Agents' Summary of Business conditions for August noted that growth in
construction output remained strong. In the housing market, the ONS House Price Index showed that UK house prices increased by 10.2% in the year to June 2014, which – all else equal – is likely to encourage developers to increase the supply of new homes. DCLG data on new housing starts in England supported this view: housing starts in Q2 2014 were 18% higher than in the same quarter a year earlier and housing completions were 7% higher over the same period.
These positive indicators followed the Bank of England’s Inflation report (August 2014), which suggested that housing transactions had fallen in Q2 2014. Some of this weakness may have arisen as a result of the implementation of the Mortgage Market Review and its impact on mortgage approvals, which have been lower in the early part of the year. However, the Agents’ Summary noted that despite these recent trends, house building output growth had not been affected. In sectors outside of housing the Agents’ Summary noted that infrastructure spending had risen recently.
More information on how construction output has fared during economic downturns can be found in the article ‘UK Construction Industry downturn in a historic context’.
Output in the Construction Industry - July 2014 All work
In July 2014 all work increased by:
• 0.0% compared with June 2014 • 2.6% compared with July 2013 Figure 1 shows the two main components of all work. The chart shows that the underlying pattern in all work has been one of growth and a similar pattern also seen in both new work and repair and maintenance. The fall in July 2014 in repair and maintenance negated the increase seen in new work resulting in a flat month on month picture.
Figure 1: All work, monthly time series, chained volume measures, seasonally adjusted Source: Construction: Output & Employment - Office for National Statistics Download chart
Figure 2 shows the components that make up all new work. The chart shows that there has been a strong increase in new housing since early 2013. With infrastructure and other new work showing a fairly constant level since this point, it suggests that the growth in all new work came primarily from new housing.
Figure 2: Components of all new work, monthly time series, chained volume measures, seasonally adjusted Source: Construction: Output & Employment - Office for National Statistics Download chart
Looking at other new work, as shown in figure 3, the increase in private commercial new work this period did little to improve the longer term picture for this sector. Public new work continued at a low level, while private industrial fell this period, bringing an end to the continuous growth seen in this type of work since December 2013.
Figure 3: Components of other new work, monthly time series, chained volume measures, seasonally adjusted Source: Construction: Output & Employment - Office for National Statistics Download chart
Figure 4 shows the components included in repair and maintenance. The chart shows that in July 2014 all repair and maintenance decreased by 1.5% of which the main contributor was non-housing repair and maintenance, which fell by 4.1% when compared with June 2014. The level of nonhousing repairs and maintenance in June 2014 was the highest figure recorded since the series began in January 2010.
Figure 4: Components of repair and maintenance, monthly time series, chained volume measures, seasonally adjusted Source: Construction: Output & Employment - Office for National Statistics Download chart
Summary of growth rates for all work types Table 2 provides a summary of growth rates across the different types of construction work in July
2014. Some key points from this table are as follows:
• The flat month-on-month figure for all work was due to non-housing repair and maintenance.
Year on year the increase in all work was due to a rise in both all new work and repair and maintenance.
• The growth in all new work on the year, was mainly due to growth in new housing and private industrial. However, month-on-month growth was mainly due to infrastructure.
• The month-on-month fall in repair and maintenance was due to a fall in non-housing repair and maintenance. However, year-on-year all three sub-sectors contributed to the overall increase.
Table 2: Construction output summary tables, chained volume measures, seasonally adjusted
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 compilation, that is measuring output by deflating value of work by an output price index.
The latest release of production in construction shows that construction output in the Euro area decreased by 0.7% in June 2014 and by 0.3% in the EU28. The GB estimate for June 2014 shows that construction increased by 1.2%. Figure 5, provides a comparison of the GB estimates of output in the construction industry with that of the Euro area and EU28.
Figure 5: Monthly indices for production in construction, working day and seasonally adjusted Source: Construction: Output & Employment - Office for National Statistics Download chart
Outside of the EU, the US Census Bureau release Value of construction put in place showed provisional estimates of construction output increasing by 1.8% in July 2014 compared with June 2014 and by 8.2% compared with July 2013.
Construction estimates in gross domestic product Construction estimates are a key 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 2010. Construction has a weight of 63, which means that it is 63 parts of the 1,000 that make up total GDP.
Figure 6: Contributions to GDP quarter on quarter percentage change (Q2 2014) Source: Construction: Output & Employment - Office for National Statistics
1. Components may not sum due to rounding.
To determine the effect each component has on GDP multiply the component growth by its weight in GDP.
An example using Q2 2013 data:
Construction growth = 1.9 Weight in GDP = 0.063 (63/1000) Effect on GDP = 1.9 * 0.063 = 0.1197 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:
IoP = between 0.3 and -0.3 Construction = between 0.7 and -0.7
IoS = 0.0 (all values above or below 0.0 effect GDP due to the high weight of IoS in GDP).
IoP = 0.152*0.4 = 0.0608 or 0.1 to 1 dp Construction = 0.063*0.8 = 0.0504 or 0.1 to 1 dp IoS = 0.778*0.1 = 0.0778 or 0.1 to 1 dp Table 3 shows the latest monthly and revised quarterly output figures that fed into the second estimate of GDP release for Q2 2014 published on the 15 August 2014.
Table 3: GDP component table, chained volume measures, seasonally adjusted
Table source: Office for National Statistics
1. † This indicates that new data have been published since the preliminary estimate of GDP Download table
The second estimate of GDP published on 15 August 2014 contained an estimate for quarterly construction growth of 0.0%. There is no change to this estimate in this release.
New Orders for Construction - Q2 2014 Figure 7: New Orders, constant (2005) index prices, seasonally adjusted Source: Barbour ABI
1. From Q2 2013 (the shaded area) new orders are based on data supplied to the ONS by Barbour ABI.