Trade surveys paint brighter picture than ONS of first quarter construction output

Trade surveys paint brighter picture than ONS of first quarter construction output

The latest batch of trade surveys provide us with some interesting counterpoint to the first official estimates of construction output, suggesting growth rather than contraction.

Within the preliminary estimate of GDP released late last month by the Office for National Statistics was an estimate that construction output shrank 4.7% in the first quarter of this year compared with the previous quarter.

If correct, this would be a blow to hopes of recovery, meaning that the start of this year was worse for construction than the snow-bound final quarter of last year.

Not surprisingly the ONS figure has been much question, not least by the Construction Products Association.

And even before its release I suggested in a blog that the construction data were creating confusion within the GDP figures.

Now various trade surveys provide more evidence that construction might have been a bit more buoyant in the first quarter than the official figures indicate.

The latest Construction Products Association state of trade survey from its materials supplier members points to a rise in business in the first quarter of this year, both quarter-on-quarter and compared with a year earlier.

Meanwhile, the trade survey released by the specialist contractor body NSCC shows, across a range of measures, improvement in the fortunes of its members in the first quarter.

Furthermore both surveys show a rise in optimism. Had the first quarter been a major disappointment, as the ONS data might suggest, it is unlikely that material suppliers or specialist contractors would have been feeling perkier.

This puts both at odds with the official view that output fell by 4.7% in the first quarter.

In reality there’s a fair chance that this initial estimate will be revised up, as discussed before on this blog, so the disparity between the trades surveys and ONS construction output survey figures should narrow.

And it is also just possible that factors other than an improvement in the total market output are cheering up the surveys from both materials suppliers and specialist contractors.

In the case materials suppliers, the relative weakness of the pound will be helping firms to build export volumes and also helping them to take market share from importers. This might mean that firms could be increasing sales in a falling market. But it is unlikely that this trend would account for the discrepancy between the CPA survey findings and the ONS official data.

As for the NSCC trade survey it is possible the data are impacted by survivor bias – that is to say with poor performing firms collapsing the data are skewed to present a more positive outlook as returns from more better-performing firms account for a greater proportion of the survey.

In fairness though these factor are likely to have a fairly limited impact on the figures quarter to quarter.

So it would seem that the evidence from these trade survey does help to reinforce the view, which became apparent with the release of January’s figures, that there is a probable lag in the construction data. So what we are seeing in the first quarter of this year is a reflection in part of what really happened late last year, which included the slowdown from the heavy snowfalls.

This view is supported by evidence from the survey of industry buyers undertaken by Markit for the buyers’ body CIPS. This also suggests that monthly output hit a low in December rather than in January, as the ONS data suggest.

In putting all this together and trying to divine what it all might mean, I suggest taking a longer-term view.

The chances are that the industry did a bit better in the first quarter than the ONS figures suggest. But, while the surveys do point to rising optimism, I can’t help but think this may be premature given there is great uncertainty ahead with a strong likelihood of a steady fall off in work.

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