The ONS’ estimate of a 1.1% drop in output in October may not be as bad as it looks
Today’s release of construction output statistics includes a welcome upward revisions to second and third quarter 2011 output, adding to +0.7% aggregate output this year. £300m of this increase is data sourced from a more complete survey of work, but the rest of the change is related to technical adjustments to constant prices.
This upgrade is a salutary reminder that it is dangerous to base too much reliance on early statistical releases, so the emerging trend of falling workload shown in the October data, a reduction of 2.5% month on month in constant prices, has to be treated with care – not only because the sample is incomplete, but because activity varies on a month by month basis anyway. Nonetheless, falling output is consistent with weakening new orders, which despite a stronger third quarter, were down by 6% compared with a year ago.
Looking at the data in a little more detail, two thirds of the reduction in volume has taken place in new build. Private housing and the commercial sector - expected to be the engines of recovery - appear to be losing momentum, whilst activity in public non-housing, which has held up remarkably during 2011, is at its lowest level since weather-affected January. Its early days, but fourth quarter 2011 could prove to be the point at which public sector construction ceased to defy gravity.
Closing on a positive note, with output data available from 10 months of returns, it looks as if total construction volumes for 2011 could be at least 2% higher than 2010 – a remarkable achievement given how sentiment has been affected during the latter half of the year. Unfortunately, no forecasters currently expect this performance to be repeated in 2012.
Simon Rawlinson is head of strategic research and insight at EC Harris