Like mathematics, it’s cool not to understand construction – until it’s seen as important
The massive heat generated over the latest GDP figures says something rather worrying about the broader understanding of construction and its position in the psyche of the nation and its policy makers.
Construction has played a major part in determining the officially accepted shape of the nation’s economic growth.
More than any other industry – save manufacturing – it has been a critical player. Indeed more than any other it helped stave off a worse recession – classic Keynesian economics some would say.
Well, with the official first estimate of construction output in the first quarter of 2011 dragging down GDP growth, suddenly we have an array of experts expounding on the industry and its role within the economy.
Sadly these experts probably couldn’t separate a backhoe loader from an excavator, probably don’t know the difference between concrete and cement, probably don’t recognise that construction isn’t really a well-defined industry but more an aggregation of often different business sectors sharing a broadly common supply chain, probably don’t understand the relationship between orders and output, and almost certainly have failed to follow the numbers with any degree of interest or curiosity.
But they feel at liberty to inform the nation and its policy makers on the fortunes of construction.
Don’t get me wrong, it is great to see so much interest being shown in the industry. Construction suffers from being a Cinderella industry, looked down upon despite is centrality to the wellbeing of all of us.
Had any of the macro economists or indeed economics commentators been following the debate over the construction numbers – and only one commentator that I have come across appears to have bothered, Stephanie Flanders at the BBC – they would have known that there are significant problems with the construction output data.
They would have known that the suggestion that construction output theoretically plunged in January 2011 compared with December 2010 was at least suspect, if not complete bollocks.
They would have been aware of a probable lag in the data.
They would have known that the first quarter estimate is based on just two months figures, both of which are suspect.
They would have known that the seasonal adjustments and deflators are uncertain. And that’s just for starters.
If they cared to look at the numbers a bit more, they would have realised that as the methodological process is set at present there is a tendency to revise upward.
The data has big problems. This is not to heap blame on the statisticians. Far from it, they are pretty open about the problems and very keen to improve the data series.
But economists and analyst should know that a quarterly estimate based on projecting just two months of suspect data, particularly at a time when the industry is extremely volatile, must be treated with extreme caution.
All of this was knowable well in advance of the release of the latest GDP figures.
If I were a tweeter I would at 9.00 am yesterday have tweeted: “Watch out for dodgy construction output numbers in the GDP figures.” And because like most tweeters I would want recognition of my worth I would have pointed to a blog written about three weeks earlier which was headlined “Construction figures pose a real headache for GDP estimates.”
Leaving aside my head-slapping tendencies in the face of people’s ignorance about construction – and I include myself in the ignorant category – there is a broader point here.
Construction – if we are to see it as one industry – is very complicated. Things are never quite as they seem and you never really understand it. A bit like mathematics, maybe.
Perhaps for this reason, it is not appealing to economists or policy makers (unless they work within it, when they grow to be fascinated by it). Economists, business journalist, analysts and the like would much rather follow sexier industries like media, or banking, or accountancy…
This means there is a paucity of understanding about an industry that is vital to the wellbeing and welfare of the nation. Sadly this leads to a glut of misunderstanding and misinterpretation to fill the void.
Isn’t it about time our policy makers and the massed ranks of advisors, economists and business analysts took note of construction on a regular basis, rather than when we are in a crisis. Perhaps that way we might have an industry guided by sensible policies rather than ill-informed knee-jerk responses to immediate problems.