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Statistical bulletin: Output in the Construction Industry, May 2014 This product is designated as National Statistics

Released: 11 July 2014 Download PDF

Key Points

  • This statistical bulletin provides users with the latest estimates of output in the construction industry for May 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.
  • In May 2014, output in the construction industry was estimated to have fallen by 1.1% compared with April 2014, after increasing by 1.2% in April. Both new work and repair & maintenance fell by 1.1% in May 2014.
  • In all new work the largest contribution to the fall came from private commercial work and public other new work. New work public housing and private industrial work increased, but due to the relatively small size of these work types, the increases did little to offset the falls elsewhere.
  • Compared with May 2013, output in the construction industry increased by 3.5%. All new work and repair & maintenance both increased by 3.7% and 3.1% respectively.
  • Housing new work provided the largest contribution to the increase in all new work compared with May 2013, with both public and private housing seeing substantial increases of 29.3% and 16.8% respectively. This resulted in all new housing increasing by 19.4%. Private industrial new work also increased compared with 2013.
  • There were notable year-on-year falls in infrastructure, public other new work and private commercial.

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 adjusted and non-seasonally adjusted.

Estimates of the construction industry in Northern Ireland are available through the Northern Ireland Statistics and Research Agency.

Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, May 2014.

The ‘Definitions and explanations’ section in the background notes of this bulletin includes additional information on items contained in this release along with further details on the newly published monthly seasonally adjusted series and the chained volume measures.
It should be noted that due to seasonal adjustment taking place on a short span of data points used to interpret the seasonal effects (53 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.

Economic Context

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 fell by 1.1% in May 2014 compared with a month earlier, but remains around 3.5% higher than in May 2013. The growth of construction is consistent with the growth of the wider economy and although the monthly outturn reflects a fall in output, the annual rate of construction growth has been positive for 12 consecutive months.

Month-on-month the fall in construction output was driven mainly by private commercial work which fell by 3.6%, and repair & maintenance which fell by 1.1%. New housing output, which includes both public and private housing, increased for the third consecutive month, experiencing growth of 1.1% driven entirely by the public housing component.

On an annual basis, the increase in construction output is distributed evenly between new work and repairs & maintenance which have increased by 3.7% and 3.1% respectively. The main driver of this recent growth is housing construction which has increased by 19.4%.

The recent increase in housing construction output is likely to reflect recent changes in house prices, which have given developers an incentive to supply more new homes. ONS’s House Price Index continues to show strong growth in UK house prices, particularly in London. This is likely to reflect a range of factors including pent-up demand, limited housing supply and a broader increase in consumer confidence. Recent movements in housing transactions and demand for secured lending on dwellings reflect this recent upturn in the housing market. The Bank of England’s Credit Conditions Survey shows that demand for secured lending for house purchases had increased significantly in Q2 2014, and the Bank’s Agents Summary of Business Conditions for May reflects that housing market transactions continue to rise strongly on a year earlier.

Outside of the construction of housing, the experience of the other components of the construction sector is more mixed. The Agents' summary of business conditions for May showed that infrastructure projects remain subdued in most areas, which is consistent with May’s relatively flat outturn for infrastructure. The Agents also noted that there was a gradual return of confidence to the commercial property market outside of London. This is in contrast to this month’s official construction data, which shows falling private commercial construction over both monthly and annual time horizons.

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 – May 2014

All construction work fell in May 2014 by 1.1% compared with April 2014 as a result of falls in both new work and repair & maintenance.

Figure 1: All work, monthly time series chained volume measures and seasonally (SA) adjusted

Figure 1: All work, monthly time series chained volume measures and seasonally (SA) adjusted
Source: Construction: Output & Employment - Office for National Statistics

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The chart shows that repair & maintenance work did not contract in the same way as new work did throughout 2012 and it is new work that has resulted in total construction output being some 6.8% below its June 2011 peak in May 2014.

All New Work

Figure 2 shows all new work split into housing and non-housing. While the overall level of all new work is influenced more by non-housing than housing, it is clear that in recent periods the upturn in all new work came more from the construction of new housing than from other new work.

Figure 2: All new work, monthly time series, chained volume measures, seasonally (SA) adjusted

Figure 2: All new work, monthly time series, chained volume measures, seasonally (SA) adjusted
Source: Construction: Output & Employment - Office for National Statistics

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The chart also shows that the level of non-housing new work is now at its lowest level since the monthly series first began in 2010. Housing new work matched its June 2011 peak in October 2013 and has continued to increase since this point. Despite there being no growth in private housing between April and May 2014, the growth in public sector housing ensured that there was still growth in this type of work.

The proportion of new work allocated to housing was approximately 24% in January 2010, and by May 2014 this proportion had risen to 36% of all new work.

Looking at the components of non-housing new work, infrastructure, public other new work, private industrial and private commercial shown in figure 3, the largest component, private commercial, fell for the fourth consecutive month and was some 19.2% below its peak in September 2011. In contrast, the smallest sector, private industrial new work increased for the fourth consecutive month but was still 11.9% below its peak in August 2010.

Figure 3: Non-housing new work, seasonally (SA) adjusted, chained volume measure

Figure 3: Non-housing new work, seasonally (SA) adjusted, chained volume measure
Source: Construction: Output & Employment - Office for National Statistics

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Table 1 provides a summary of the different work types in May 2014. More information on what is covered by each work type (75.5 Kb Pdf) is available.

Table 1: Component comparison to previous levels (£millions)

  New Housing   Other New Work   All
          Excluding Infrastructure   New
  Public Private Total Infras- Public Private Private   Work
        tructure   Industrial Commercial  
Current volume 473 1,633 2,106 1,020 737 314 1,715 5,892
Lowest volume* 316 1,071 1,392 987 737 241 1,564 5,441
Date Jan 13 Jan 10 Jan 10 Dec 10 May 14 Jul 11 Sep 12 Jun 12
Highest volume* 473 1,672 2,115 1,363 1,240 357 2,123 6,621
Date May 14 Jan 14 Jan 14 Dec 11 Feb 11 Aug 10 Sep 11 Jun 11
Percentage change from lowest volume 49.7 52.4 51.3 3.3 0.0 30.5 9.7 8.3
Percentage change from highest volume 0.0 -2.4 -0.4 -25.2 -40.6 -11.9 -19.2 -11.0

Table source: Office for National Statistics

Table notes:

  1. Monthly time series data for these components begins in January 2010

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Table 2: Construction output summary tables, chained volume measures, seasonally adjusted

Chained volume measures                
Seasonally adjusted                
  Percentage change £million
  Most recent 3 months on a year earlier  Most recent 3 months on 3 months earlier  Most recent month on the same month a year ago Most recent month on the previous month Most recent level
Construction  
Total All Work   4.9 -0.8 3.5 -1.1 9,569
Total All New Work   5.3 -1.3 3.7 -1.1 5,892
Total Repair & Maintenance   4.3 -0.1 3.1 -1.1 3,676
             
   
All New Work
 
Total All New Work   5.3 -1.3 3.7 -1.1 5,892
New Housing            
  Public Corporations   29.6 4.6 29.3 5.2 473
  Private Sector   19.9 0.9 16.8 0.0 1,633
Other New Work            
Infrastructure   -8.1 -6.0 -7.1 0.0 1,020
Excl Infrastructure            
Public Corporations   -4.2 -2.7 -6.8 -4.2 737
Private Sector             
Private Sector - Industrial   12.3 11.1 19.1 1.3 314
Private Sector - Commercial   0.8 -3.0 -2.9 -3.6 1,715
             
   
Repair & Maintenance
 
Total Repair & Maintenance   4.3 -0.1 3.1 -1.1 3,676
Housing            
Public Corporations   -3.1 -1.9 -0.2 -1.7 574
Private Sector   7.4 0.3 2.5 -2.6 1,200
Non-Housing   4.8 0.2 4.5 0.1 1,902
             

Table source: Office for National Statistics

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International Perspective

Output in the construction industry follows the Eurostat Short Term Statistic (STS) regulations for production in construction. Before any comparisons are made with the Euro area or EU 28 it is worth noting that the UK is the only Member State which follows the A (or ideal) method for compiling production in construction statistics.

The latest release of Production in construction shows construction output in the Euro area increased by 0.8% in April 2014 and by 0.6% in the EU 28. The GB estimate for April 2014 shows construction output increasing by 1.2% but that most of this growth was cancelled out by a fall in May 2014 of 1.1%. Figure 4 provides a comparison of the GB estimates of output in the construction industry with that of the Euro area and EU 28.

Figure 4: Monthly indices for production in construction, working day and seasonally adjusted

Figure 4: Monthly indices for production in construction, working day and seasonally adjusted
Source: Construction: Output & Employment - Office for National Statistics

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Outside of the EU, the US Census Bureau's release Value of construction put in place shows provisional estimate of construction output increased by 0.1% in May 2014 compared with April 2014, and by 6.6% compared with May 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 releases that directly feed into GDP now include an additional table of 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.

Contribution to Q1 2014 GDP growth of 0.8%

The UK GDP growth figure is a balanced figure taking account of expenditure and income data, as well as output.  Thus it may not be equal to the sum of the growth contributions from the industrial indices.

Figure 5: Published contribution to Q1 2014 GDP

Figure 5: Published contribution to Q1 2014 GDP
Source: Construction: Output & Employment - Office for National Statistics

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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).

Because;

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 third estimate of GDP release for Q1 2014, published on 27 June 2014.

Table 3: GDP component tables, chained volume measure, seasonally adjusted

        Percentage Change
Publication Weight in GDP Publication date Latest periods Most recent period on a year earlier  Most recent period on the previous period 
GDP 1000 27-Jun      
Q1 2014 3.0† 0.8
Q4 2013 2.7 0.7
     
Index of Production 152 08-Jul      
Q1 2014 2.4 0.7
Q4 2013 2.2 0.4
     
Construction output 63 11-Jul      
Q1 2014 6.7 1.5
Q4 2013 4.5 0.5
     
Index of Services 778 27-Jun      
Q1 2014 2.8 0.8
Q4 2013 2.5 0.7
     
Agriculture 7 27-Jun      
Q1 2014 3.7† 1.0†
Q4 2013 -2.4 0.2
     

Table source: Office for National Statistics

Table notes:

  1. revised since previous publication

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Background notes

  1. What’s new?

    Following a seminar on changes to construction price indices held on June 19 2014 and an accompanying article, the department for Business Innovation and Skills have launched a consultation process surrounding this change. In conjunction with ONS, BIS are keen to understand users views on the proposed methodology for the following areas:

    • input cost indices

    • conversion of input cost indices to output price indices

    • the choice of market indicator

    • the length of the published time series

    • its incorporation into ONS statistics 

    The consultation will close at 5:30pm on July 28 2014.

     

  2. About this release

    Construction output estimates are a short term indicator of construction output by private sector and public corporations within Great Britain. Output 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).

    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.

  3. Revision  policy

    This release conforms to the standard National Accounts revision policy (27.8 Kb Pdf) , which can be found on the National Statistics website. In line with this, the construction output release for May 2014 has a revision period back to April 2014.

    Figures for the most recent months are provisional and subject to revision in light of (a) late responses to the Monthly Business Survey MBS and (b) revisions to seasonal adjustment factors which are re-estimated every period.

  4. Statistical continuous improvement

    In March 2012, as part of its Statistical Continuous Improvement programme, ONS published a Review of Sample Design and Estimation Methodology for Construction Output. This report evaluated the sample design and estimation methods used on the Construction Output Survey. The conclusions of the review were that the current sample is performing well and that the current methodology for estimation within the survey produces the smallest standard error.

    In response to user feedback and in line with the announcement made in the article ‘Improvements to the methods used to compile Output in the Construction Industry statistics’, this statistical bulletin now contains monthly seasonally adjusted chained volume estimates. Due to the potential for confusion when comparing constant price (volume) and chained volume measures, all references to constant price series for construction output have been removed from this, and future bulletins.

    A work plan for construction output statistics will be published shortly and will align with the National Accounts and related statistics work plan

  5. Use of the data

    Output in the Construction Industry estimates are widely used both internally and externally and have been identified by legal requirement and user engagement surveys.

    The key users of data from the Output of the Construction Industry dataset are:

    • United Kingdom National Accounts

    • Eurostat, the statistical office of the European Union, in order to comply with statutory legislation on short-term business statistics (STS). Short-term business statistics provide information on the economic development of four major domains: industry, construction, retail trade and other services.

    • Industry analysts requiring estimates of the construction industry output of Great Britain.

    • Trade associations making UK and international comparisons and to forecast trends in the construction industry.

    • Other government departments including; the Department for Business, Innovation and Skills (BIS), HM Treasury (HMT), Department for Communities and Local Government (DCLG) and the Office for Budgetary Responsibility (OBR).

    As well as being a key indicator of the performance of construction companies, the results of the survey also contribute to the estimate of the gross domestic product of the UK, contributing approximately 6.3% of GDP.

    More information on the uses made of short terms economic statistics is available.

  6. Methods

    The ONS Monthly Construction Output Survey measures output from the construction industry in Great Britain. It samples 8,000 businesses, with all businesses employing over 100 people or with an annual turnover of more than £60m receiving a questionnaire by post every month. The results of the survey are deflated using price indices from the Building Cost Information Service (BCIS) of the Royal Institute of Chartered Surveyors (RICS) and then seasonally adjusted using X-12 Arima to derive the published estimates.

  7. Quality

    The latest Quality and Methodology report for the Output of the Construction Industry estimates can be found on the ONS website.

  8. Revisions

    One indication of the reliability of the key indicators can be obtained by monitoring the size of revisions. Analysis of the previously published quarterly seasonally adjusted constant price series has shown that revisions to construction data are small. Generally these quarterly revisions are less than 1 percentage point when compared with the final revised period five quarters after initial publication. This indicates that the published estimates are a reliable snapshot of the output in the industry at the date of publication.

    The size and pattern of revisions which have occurred in the chained volume measures in the open period for revisions can be found in the new revision triangles on the construction web page. Please note that these indicators only report summary measures for revisions. The revised data may be subject to sampling or other sources of error. Details about this revisions material can be found in the document ‘Revisions information in ONS First Release’.

    It should be noted that due to seasonal adjustment taking place on a short span of data points used to interpret the seasonal effects (49 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.
    Please note that a monthly seasonally adjusted chained volume series is not available pre-2010. This is due to monthly data not being available for this period. These data are a requirement for creating previous years' prices from which chain linked volume measures are created.

  9. Relevant links

    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.

    Analysis of the construction industry

    An article on the UK construction industry was published by BIS in 2013.

  10. Further information

     Releases on construction output and employment prior to the transfer to ONS can be found on the BIS website.

  11. User Engagement

    The user engagement section of the ONS website contains results of the survey held in April 2011 regarding users' satisfaction and use of the new orders and construction output surveys.

  12. GENERAL INFORMATION

    Understanding the data

    Interpreting the data

    When making comparisons it is recommended that users focus on chained volume measures or constant price (volume), seasonally adjusted estimates as these show underlying movements rather than seasonal movements.

    Construction output estimates are subject to revision because of:

    • late responses to the Construction Output Survey.

    • revisions to seasonally adjusted factors which are re-estimated every quarter.

    • annual updating of the Inter-Departmental Business Register (IDBR) that forms the basis of the sampling for the Construction Output Survey. This occurs in April and can have an effect on the results published in May.

    Definitions and explanations

    Definitions of terminology found within the main statistical bulletin are detailed below:

    Output
    Output is defined as the amount chargeable to customers for building and civil engineering work done in the relevant period excluding VAT. As well as work charged to customers, businesses are asked to include the value of work done on their own initiative on buildings such as dwellings or offices for eventual sale or lease, and of work done by their own operatives on the construction and maintenance of their own premises. The value of goods made by businesses themselves and used in the work is also included.

    In all returns, work done by sub-contractors is excluded to avoid double counting, since sub-contractors are also sampled. Output does not include payments made to architects or consultants from other firms – this would also cover engineers and surveyors. It would include wages paid to such people if they were directly employed by the business.

    Current price (value) (CP)
    Current prices are the actual or estimated recorded monetary value over a defined period. They show the value for each item expressed in terms of the prices of that period.

    Constant price (volume) (KP)
    A constant price or volume measure is a series of economic data from successive years expressed in real terms by computing the production volume for each year in the prices of a reference year. The resultant time-series of production figures has the effects of price changes removed (that is, monetary inflation or deflation). In other words, from the raw data a series is obtained which reflects only production volume. See the ‘Deflation’ section. Constant price series in this bulletin are based on the reference year 2005.

    Chained volume measures (CVM)
    A chained volume series is a series of data from successive years, put in constant price terms by computing the production volume for each year in the prices of the preceding year, and then chain-linking the data together to obtain a time-series of production figures from which the effects of price changes (i.e., monetary inflation or deflation) have been removed. Further information on chain-linking can be found in the methodological article ‘Annual chain-linking’.

    Seasonal adjustment (SA)
    Seasonal adjustment aids interpretation by removing effects associated with the time of the year or the arrangement of the calendar, which could obscure movements of interest.

    Deflation
    It is common for the value of a group of financial transactions to be measured in several time periods. The values measured will include both the change in the volume sold and the effect of the change of prices over that year. Deflation is the process whereby the effect of price change is removed from a set of values. The current reference year is 2010 for CVM data.

    Sectors
    Institutional sectors are defined in the System of National Accounts (SNA) glossary as;
    Units that are grouped together to form institutional sectors on the basis of their principal functions, behaviour, and objectives.

    The resident institutional units that make up the total economy are grouped into five mutually exclusive sectors:

    • non-financial corporations.

    • financial corporations.

    • general government.

    • non-profit institutions serving households.

    • households.

    In the case of non-financial and financial sectors these can be further broken down into public sector, those units either controlled by the state or funded from the public purse and include general government, local authorities, housing associations and nationalised industries and private sector, those units controlled by private individuals or groups and not by the public sector.

    Gross domestic product (GDP)
    Gross domestic product (GDP) is an integral part of the UK national accounts and provides a measure of the total economic activity in a region.

    GDP is often referred to as one of the main 'summary indicators' of economic activity and references to 'growth in the economy' are quoting the growth in GDP during the latest quarter.

    Construction estimates are a component of GDP from the output or production approach (GDP(O)) which measures the sum of the value added created through the production of goods and services within the economy (our production or output as an economy). This approach provides the first estimate of GDP and can be used to show how much different industries (for example, agriculture) contribute within the economy.

    Housing
    Housing is generally defined as ‘all buildings that are constructed for residential use’. Within the public sector this classification includes construction items such as local authority housing schemes, hostels (except youth hostels), married quarters for the services and police; old peoples' homes; orphanages and children’s remand homes; and the provision within housing sites of roads and services for gases, water, electricity, sewage and drainage.

    Private sector housing includes all privately owned buildings for residential use, such as houses, flats and maisonettes, bungalows, cottages, vicarages, and the provision of services to new developments.

    Infrastructure
    Infrastructure is the generic term for the basic physical and organisational structures and facilities needed for the operation of a society or enterprise. These construction items include buildings, roads, power supplies, etc.

    Other new work
    Other new work excludes the housing and infrastructure sectors. This classification includes construction items such as factories, warehouses, schools and offices, etc.

    Non-housing
    Within the public sector, non-housing is classified as the construction of building such as schools and colleges, hospitals, universities, fire stations, prisons and museums. Private sector non-housing is comprised of the private /industrial and private/commercial classifications. Private - industrial is the economic activity concerned with the processing of raw materials and manufacture of goods in factories and includes construction items such as factories and shipyards while private – commercial includes all items not included in the previous categories such as embassies, theatres, retail units, warehouses and garages, etc.

    Repair & maintenance
    The repair & maintenance heading in the construction estimates comprises of housing, infrastructure and other new work. This concerns work which is either repairing something that is broken, or maintaining it to an existing standard.  For housing output this includes repairs, maintenance, improvements, house/flat conversions, extensions, alterations and redecoration, etc. on existing housing. For non-housing this includes repairs, maintenance, redecoration, etc. on existing buildings/structures, which are not housing, for examples schools, offices, roads, shops.

    Table 2 of this bulletin aggregates infrastructure and other new work into non-housing.

  13. Code of Practice for Official Statistics

    National Statistics are produced to high professional standards which are set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs and are produced free from any political interference.

  14. Publication policy

    Details of the policy governing the release of new data are available from the Media Relations Office.

  15. Accessing data

    The Output in the Construction Industry statistical bulletin and relevant time series datasets are available to download free from the Office for National Statistics website at 9.30 am on the day of publication.

    ONS allows a list of agreed officials to have access to data 24 hours before publication, which is available on the Output in the Construction Industry: Pre-Release Access list.

  16. Further information and user feedback

    As a user of our statistics, we would welcome feedback on this release, in particular on the content, format and structure. For further information about this release, or to send feedback on our publications, please contact us using the following information.

    Contacts:

    Media contact:
    Tel Media Relations Office    +44 (0)845 6041858
     Emergency on-call    +44 (0)7867 906553
    Email  press.office@ons.gsi.gov.uk

    Statistical contact:
    Name Kate Davies
    Tel +44 (0)1633 455617
    Email construction.statistics@ons.gsi.gov.uk

    Contact us:
    Tel  +44 (0)845 601 3034
    Email  info@ons.gov.uk
    Website  www.statistics.gov.uk
    Twitter  www.twitter.com/statisticsONS

  17. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

Statistical contacts

Name Phone Department Email
Kate Davies +44 (0)1633 456344 Office for National Statistics construction.statistics@ons.gsi.gov.uk
Get all the tables for this publication in the data section of this publication .
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