The Construction Products Association and the Office of National Statistics are presenting different views of the government body’s Q4 and Q1 construction output data, after the ONS last week confirmed two successive quarters of negative growth – a “technical recession”.
The ONS bases its figures on monthly surveys of 8,000 construction contractors, of all sizes and in all regions, in what it calls “the biggest and best measure of the UK construction sector”.
Its preliminary estimate was for a 1.6% decline in output in Q1 2015, although this was revised last week to 1.1%.
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But the CPA points out that the latest data contradicts the findings of several other industry surveys covering the same period, listing the CPA’s own state of trade survey; the Federation of Master Builders’ survey looking at the SME sector; the Civil Engineering Contractors Association survey on the civils and infrastructure sector; and the Markit /CIPS UK Construction Purchasing Managers’ index.
The CPA’s economics director, Dr Noble Francis, told Construction Manager: “When you look at other sources, they all indicate a rise in construction activity over that time.”
New work: seasonally adjusted (2011 = 100)
Source: Construction: Output & Employment – Office for National Statistics
Francis added that the Bank of England had also recently highlighted the variance between the ONS figures, and independent sources, including information from the CIPS and Experian.
And he pointed out that, over the two quarters in question, construction employment had risen by 1%. Also, in Q1 2015 construction employment was 1.5% higher than in Q1 2014. “If output had fallen, why over that time would contractors be increasing headcount?” he asked.
In a statement the ONS said: “Without knowing the specific methods being used, it is difficult to make comparisons between ONS statistics and other sources of construction data.”
The ONS survey asks people to fill in a form based on the value of work completed in the last month, while most of the other surveys measure “sentiment” – opinions differ as to which approach yields more accurate data.
“We know that they revised their price deflators relatively recently. We can’t say for certain they are the only cause of the problem, but they were certainly one of the issues.”
Noble Francis, CPA
Francis also highlighted a change in the way the ONS “deflates” its raw data to strip out the effect of price rises, to achieve like-for-like comparisons of construction volumes over time.
Francis said: “We know that they revised their price deflators relatively recently. We can’t say for certain they are the only cause of the problem, but they were certainly one of the issues,” he said.
The ONS has confirmed to Construction Manager that the change took place in December 2014 and was then applied to the Q4 data from October to December, as well as the Q1 figures.
Francis added that the ONS had already released a statement saying that it would again be revising its processes in time for the release of the output Q2 figures. “Hopefully this should provide a more stable set of data,” he said.
A spokeswoman for the ONS said that the impact of the change in the way the deflators were calculated was likely to have been “small” and “unlikely to have completely changed the picture”.
She also pointed out the last week’s figures for Q1 construction output by value (rather than by volume, as above) had also shown declines in Q4 and Q1 – indicating a consistent picture with or without the deflators.
Finally, she pointed out the non-ONS surveys mentioned above had all recorded slowdowns in output growth. “We’ve seen a slowing in the positive scores, their figures do not show it’s as buoyant as it has been.
“However, we’re still at a much higher level than we were in 2012 and 2013. A couple of periods of contraction can’t be taken as signal that something’s gone wrong [with the data], you have to look at the picture over a longer period,” she said.
The problem with the deflators arose when the Building Cost Information Service (part of RICS) stopped producing a set of data called the Construction Price and Cost Indices, which were used to calculate the deflators. From December 2014, the ONS used a set of deflators extrapolated from the historic CPCI series.
From 12 June, it will have a new set of “intermediate deflators” based on a variety of statistical sources. But Aecom has been awarded the contract to produce a new set of price indices, which are due to take effect later this year.
Whatever the issues, everyone agrees it is important to have a set of ONS data everyone can rely on. Francis said: “The ONS figures are what we use as a basis of our forecasts, and they also feed in to national GDP figures, so they’re vitally important. It’s the biggest wide-ranging survey on construction and most of the time it has been reflective of what’s happening.”
