The latest construction output figures show that the industry remains in a relatively healthy position

Michael Dall

This month’s construction figures were notable for a fall in the level of output recorded between July and August. But before the gloomy predictions begin it is important to consider this decline in its proper context. Revisions to previous data mean that levels of output were actually much higher in July than originally estimated by the ONS. The first estimate of construction output figures are usually based on around 40% of survey returns so it is not unusual for these figures to be revised upwards like this.

What continues to be apparent though is the nature of recent growth. Since the start of 2012 (which was a poor year for the industry as a whole) private housing output is 20% higher, while the commercial sector is 11.5% lower and infrastructure 16.1% lower. Total output is 1.7% higher in the same period.

So while growth in housing is welcome news, the output levels in commercial and infrastructure are clearly hampering overall growth patterns.

It is not clear why commercial output in particular is so sluggish at the moment. It would be natural for firms to be more cautious about investing in major commercial projects given the tough years the industry has experienced. Equally it is only recently that levels of business investment have shown an increase in official figures. So perhaps there is a lag between the projects being signed off and spades in the ground. Barbour ABI’s most recent data on contracts awarded for the commercial sector suggest as much, with year-on-year comparisons for August showing an increase of 95.8%.

For infrastructure it is a different story. Output is falling and when you compare August 2014 with August 2013, contracts awarded are 20.3% lower by value.

The reasons for this are unclear. Are major infrastructure projects impacted by the upcoming general election? There are certainly a lot of planned projects in the pipeline according to the latest Government Construction Infrastructure pipelines but making that transition to activity is not necessarily straightforward.

In conclusion, while this month’s dip in output was unexpected the influence of data revisions is clearly having an impact. That said, the longer-term declines in output and contracts awarded in the infrastructure sector will present the industry with challenges in the future.

Michael Dall is an economist at Barbour ABI

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