How the 3% fall in construction output could have been worse
The estimated collapse of 3% in construction output in the first quarter could so easily have been much worse had the methodology team at ONS not spotted a quirk in the seasonal pattern.
This led to an adjustment upward from a drop of 4% to the recorded drop of 3%.
Without going into technical detail that I don’t fully understand, the connection of the old series to the new series in January 2010 created a “seasonal break”.
There’s a whole host of factors that might be responsible here, including the surveying shifting from quarterly to monthly.
Anyway the upshot is that before any adjustment was made for this quirk the data pointed to a drop of 4% in construction output in the first quarter. Had this stood it would have most likely pulled the drop in total UK GDP down to -0.3%.
But the quirk suggests that the first quarter in the new series is running about 1% lower than it probably should be.
So the first quarter figure was adjusted upward to -3% and we have what we have.
How this might feed back into the recorded construction output data is not clear. But it might just be that the rather unbelievable spike of 10.5% growth in the second quarter of 2010 ends up as a less unbelievable figure.
This may seem all rather academic and in a way it is as these figures don’t change what actually happened on the ground. But they do influence how policymakers think.
One thought on “How the 3% fall in construction output could have been worse”
Your Blog yesterday on the ONS’s Q1 2012 GDP numbers, especially the construction figures, paints, in my very humble opinion, a more positive picture of what is a dire situation.
We all know that unadjusted January and February numbers are a problem – January with the Christmas hangover, New Year celebrations, the weather, etc, and for this to carry over, slightly, in February, the weather again (although this year is was not so bad and we did have a Leap Year).
On this basis, March numbers are expected to show good growth over those for February. For example, the ‘non-seasonally adjusted’ March 2010 total construction work number was 18.6% up on February 2010, while the March 2011 figure was up 19.3%. (We do not have earlier data as monthly numbers just started in 2010.)
So, in the press release, the ONS has looked as several scenarios which gives a construction GDP value ranging from –7.2% to –3.5% – I have ignored the chance that March would be 40% higher than February! And this assumes some, positive, revisions to earlier numbers.
Because of other changes, they went for –3%, the best option of all their scenarios.
(Page 3 of the ONS’s press release shows all options – http://www.ons.gov.uk/ons/dcp171778_263578.pdf )
On a seasonally adjusted basis, in my very humble opinion, I could quite easily see Q1 2012 being down 5% on Q4 2011, with a worse case scenario of –10% (the extreme worse case scenario)!!
When you look at the fundamentals, what households, private firms and the public sector are spending, and planning to spend, I think that the ONS has chosen the best option out of all their scenarios – a –3% for construction GDP in Q1 2012.
Should the fall be as large as I suggest, expect government to look more psoitively at how it can promote construction work, BUT WITHOUT SPENDING ANY OF ITS OWN MONEY!!
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