Output in the Construction Industry: December 2015 and Quarter 4 (Oct to Dec) 2015

In Quarter 4 (Oct to Dec) 2015, output in the construction industry was estimated to have decreased by 0.4% compared with Quarter 3 (July to Sept) 2015. This is a downward revision of 0.3 percentage points from the estimate included in the preliminary estimate of gross domestic product (GDP) published on 28 January 2016.

Downward pressure on the quarter came from repair and maintenance (R and M) which decreased by 1.4%. This was offset by an increase of 0.2% in all new work.

Between Quarter 4 (Oct to Dec) 2015 and Quarter 4 (Oct to Dec) 2014, output was estimated to have increased by 0.4%.

In December 2015, output in the construction industry was estimated to have increased by 1.5% compared with November 2015 due to an increase of 2.6% in all new work. This was offset by repair and maintenance which decreased by 0.5%.

When comparing the annual 2015 data with 2014, output in the construction industry was estimated to have increased by 3.4%. All new work increased by 6.8% while repair and maintenance decreased by 2.2%.

The preliminary estimate of gross domestic product (GDP) for Quarter 4 (Oct to Dec) 2015 published on 28 January 2016 contained a forecast for construction output of a fall of 0.1%. This estimate has been revised within this release based upon updated survey responses; output is now estimated to have decreased by 0.4%. This downward revision to construction output has no impact to 1 decimal place on GDP growth.

The release for December 2015 has a revision period back to January 2015. Revisions in this release were caused by the incorporation of late data. More information on revisions can be found in the background notes.

Output is defined as the amount charged by construction companies to customers for the value of work (produced during the reporting period) excluding VAT and payments to sub-contractors.

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.

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).

Detailed estimates along with a longer run of time series data are available to download in the Output in the Construction Industry, December 2015 reference tables. In these tables, users will find chained volume estimates back to Quarter 1 (Jan to Mar) 1997, and monthly estimates back to January 2010. Current price non-seasonally adjusted data are available back to Quarter 1 (Jan to Mar) 1955. More information on these statistics can be found in the "Definitions and explanations" article.

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.

National Statistics status

On 11 December 2014 the UK Statistics Authority announced its decision to suspend the designation of Construction Price and Cost Indices due to concerns about the quality of these deflators. As a result the UK Statistics Authority announced its decision to suspend the designation of Output and New Orders as National Statistics in respect of the Code of Practice for Official Statistics.

We took responsibility for the publication of the Construction Price and Cost indices from the Department of Business Innovation and Skills (BIS) on 1 April 2015. Since this point we have worked towards creating an interim solution to measure output prices and replace the statistical models that had been used in the production of chained volume measures (CVMs) for output in the construction industry since Quarter 3 (July to Sept) 2014 and to provide an ongoing source of data from Quarter 1 (Jan to Mar) 2014 onwards. This interim solution was included in the data published in June 2015 for all periods from January 2014 onwards.

A work plan for the development of construction price statistics was published on 11 December 2015 on our website and provides information on both our research into nominal data as well as construction price statistics.

All work

In Quarter 4 (Oct to Dec) 2015 all work:

• decreased by 0.4% compared with Quarter 3 (July to Sept) 2015

• increased by 0.4% compared with Quarter 4 (Oct to Dec) 2014

Figure 1 shows the 2 main components of all work. The chart shows the fall in Quarter 4 (Oct to Dec) 2015 of 0.4% in all work compared with Quarter 3 (July to Sept) 2015 was caused by a decrease in repair and maintenance of 1.4%. All new work increased by 0.2%. All work increased by 0.4% in Quarter 4 (Oct to Dec) 2015 compared with the same period last year and is the lowest year-on-year increase since Quarter 1 (Jan to Mar) 2013 when it fell by 4.3%. All new work increased by 2.8% compared with the same period last year while repair and maintenance decreased by 3.7%.

Figure 2 looks at the main components of all new work. After sustained growth in new housing from Quarter 2 (Apr to June) 2013 to Quarter 2 (Apr to June) 2015, there was a fall in Quarter 3 (July to Sept) 2015 of 5.7%, followed by a return to growth in Quarter 4 (Oct to Dec) 2015 of 4.1%. In Quarter 4 (Oct to Dec) 2015, infrastructure reported a fall of 3.9% and was at its lowest level since Quarter 4 (Oct to Dec) 2014. Other new work continued to fall into Quarter 4 (Oct to Dec) 2015 and was at its lowest level since Quarter 1 (Jan to Mar) 2014.

Figure 3 looks at the main components of repair and maintenance. In Quarter 4 (Oct to Dec) 2015, all repair and maintenance decreased for the fifth consecutive quarter, falling by 1.4%. Housing repair and maintenance decreased by 3.3% in Quarter 4 (Oct to Dec) 2015 while non-housing repair and maintenance increased by 0.7%. On the year, repair and maintenance fell by 3.7%. Non-housing repair and maintenance was the main contributor falling by 6.2%, while housing repair and maintenance fell by 1.1%.

Figure 4 shows the contribution of each sector to output growth in the construction industry between Quarter 3 (July to Sept) 2015 and Quarter 4 (Oct to Dec) 2015. In Quarter 4 (Oct to Dec) 2015, all work types except total housing, private commercial and non-housing repair and maintenance saw decreases in output. The largest downwards contribution came from housing repair and maintenance.

All work

In December 2015 all work:

• increased by 1.5% compared with November 2015

• increased by 0.5% compared with December 2014

Figure 5 shows the 2 main components of all work. The chart shows that since the series began in January 2010 the monthly path has been volatile. The early period shows that after a rise in output in early 2010, the level remained fairly consistent until late 2011 when output started to fall. Output increased steadily in 2013 and 2014 with all new work, and repair and maintenance performing at a similar level, however, in late 2014 the 2 components started to move in opposite directions. In December 2015, all work increased by 1.5% compared with November 2015. The main contributor was all new work which increased by 2.5% while repair and maintenance decreased by 0.5%.

Figure 6 looks at the main components of all new work. There was sustained growth in new housing from early 2013 to late 2014, however, there has been a mixed picture in 2015 with weakness between May 2015 and August 2015 followed by a return to growth from September 2015 to December 2015. Infrastructure continues to be volatile in 2015 but showed strong growth into December 2015, with an increase of 12.0% compared with November 2015, the highest month on month increase since January 2015. Other new work has been fairly flat since the end of 2012. In more recent periods there have been falls in 5 of the last 6 months, with December 2015 reporting a fall of 2.4% compared with November 2015, the largest month-on-month fall since March 2015.

Figure 7 looks at the 2 main components of repair and maintenance. The level of both housing and non-housing repair and maintenance has been fairly consistent since 2010. In December 2015, housing repair and maintenance fell by 1.3% compared with November 2015, while there was an increase in non-housing repair and maintenance of 0.4% over the same period.

Summary of growth rates for all work types

Table 2 provides a summary of growth rates across the different types of construction work in December 2015. Some main points from this table are as follows:

• there were month-on-month increases in all work types except private industrial, private commercial and private housing repair and maintenance

• the year-on-year increase in all work was due to all new work; within all new work all work types except public new housing, public other new work and private commercial work reported increases

• all work types within repair and maintenance reported year-on-year decreases

Figure 8 shows the contribution of each sector to output growth in the construction industry between November 2015 and December 2015. In December 2015, all work types except total housing repair and maintenance, private commercial and private industrial saw increases in output. The largest upwards contribution came from infrastructure.

Output in the construction industry grew by 3.4% in 2015 compared with 2014. The level of all work remained 2.0% below its peak in 2007.

Figure 9 shows that the increase in all work in 2015 was caused by an increase in all new work, which increased by 6.8% compared with 2014. This was offset by repair and maintenance which fell by 2.2% and is the largest year-on-year decrease since 2010 when it decreased by 3.1%.

Output in the Construction industry estimates are produced from the Monthly Business Survey on the second Friday of the month, 2 months after the reporting month. Revised results, for previously published periods, are published in line with the national accounts revisions policy. More information about the data content for this release can be found in the background notes.

Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The response rate in December 2015 was 71.5% of questionnaires, accounting for 75.4% of registered turnover in the construction industry. Therefore the estimate is subject to revisions as more data become available.

The monthly output in the construction industry time series now spans 72 months, however, users should note that 60 months is the minimum time span recommended by Eurostat for seasonal adjustment. While the seasonal pattern is generally established after 60 months in a monthly time series, there is still potential for increased revisions until the seasonal pattern has matured.

All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. For construction output we publish sample and non-sample errors in Table 11 of the main reference tables. It should be noted that we are continually working on methodological changes to improve the accuracy of the construction output estimates. Progress on these can be found on the ONS continuous improvement page on our website.

A close investigation of the sampling methods used during the production of the figures for the output in the construction industry release showed that the parameters used in the treatment of outliers resulted in more outliers being detected in the first 4 months of the year (January, February, March and April) than at any other point. In reviewing this, we found that this outlier treatment could be improved. This led to revisions across these 4 months in the estimates published by us on 11 December 2015. Additionally, we incorporated the results of a seasonal adjustment review which also contributed to revisions in the data. Implementation of these improvements has resulted in an inconsistency between the annual non-seasonally adjusted and seasonally adjusted data. This is currently being reviewed.

Construction estimates are a main 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 2012. Construction has a weight of 59, which means that it is 59 parts of the 1,000 that make up total GDP.

To determine the effect each component has on GDP multiply the component growth by its weight in GDP.

An example using Quarter 2 (Apr to June) 2015 data:
Construction growth = 1.4
Weight in GDP = 0.059 (59/1000)
Effect on GDP = 1.4 * 0.059 = 0.08 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:

Index of Production (IoP) = between 0.3 and -0.3
Construction = between 0.9 and -0.9
Index of Services (IoS) = 0.0 (all values above or below 0.0 effect GDP due to the high weight of IoS in GDP).

Because;

IoP = 0.148*0.4 = 0.0592 or 0.1 to 1 dp
Construction = 0.059*0.9 = 0.0531 or 0.1 to 1 dp
IoS = 0.786*0.1 = 0.0786 or 0.1 to 1 dp

Table 3 shows the latest monthly and revised quarterly output figures that fed into the GDP Preliminary Estimate release for Quarter 4 (Oct to Dec) 2015 published on 28 January 2016.

The Quarterly National Accounts published on 28 January 2016 contained an estimate for quarterly construction of a decrease of 0.1%. This estimate has been revised within this release based upon updated survey responses and is now estimated to have decreased by 0.4%.

On the month, construction output increased by 1.5% in December 2015, the fastest rate seen since April 2015. This followed a 1.1% contraction in November and 0.4% growth in October, resulting in a slight contraction (-0.4%) in output over the fourth quarter (Oct to Dec) of 2015.

The biggest contribution to the rise in output in December 2015 came primarily from growth in infrastructure, supplying a greater contribution to total growth than the other work types combined. Infrastructure increased by 12.0% on the month, the first positive increase since July 2015, which has resulted in output moving back to levels seen around the middle of 2015. New housing work, both public and private, made the next highest contributions to growth, increasing by 11.3% and 2.4% respectively. This was partially offset by a poorer performance in private industrial and commercial work types (other than infrastructure); output declined in these categories by 6.6% (the third successive month of contraction) and 2.9% over the month respectively.

Comparing December 2015 with December 2014, output increased by 0.5%, while the rate of construction output growth for the 2015 calendar year as a whole was 3.4%, lower than the historically strong growth of 7.5% seen in 2014, but above the pre-downturn average rate of growth. The largest increases over the calendar year came from infrastructure (22.7%) and private housing (7.4%). The largest contractions over the year were in public housing (-16.8%), non-infrastructure private commercial work (-7%) and non-housing repair and maintenance (-4.9%).

Over a longer time period it is clear that the construction of new housing has performed better than the majority of the remaining construction industry. Compared with levels seen prior to the downturn in Quarter 1 (Jan to Mar) 2008, new housing work has increased by 16.2% while the construction industry as a whole has fallen by 4.1%. However, much of this increase occurred in 2014; calendar year growth in new housing was 25.5% and has slowed since to just 3.7% in 2015.This is set against a backdrop of continued house price inflation – the ONS House Price Index indicates an increase in prices of 7.7% in the year to November 2015, while the average of the Halifax and Nationwide measures of house prices show an increase of 7.2% in the year to Quarter 4 (Oct to Dec) 2015. House price growth has coincided with an 11.6% rise in residential property transactions according to HM Revenue and Customs data.

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 compiling production in construction statistics.

The latest release of production in construction showed that construction output in the euro area (EA19) increased by 0.8% and by 0.7% in the EU28 in November 2015 compared with October 2015. The Great Britain estimate for November 2015 showed that construction output decreased by 1.1%. It should be noted that an accurate comparison cannot be made as Eurostat data are calculated on a 2010 = 100 basis, while Great Britain data are calculated on a 2012 = 100 basis.

Outside of the EU, the US Census Bureau release Value of construction put in place published on 1 February 2016, showed provisional estimates of construction output increased by 0.1% in December 2015 compared with November 2015 and increased by 8.2% compared with December 2014.

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.