What is the optimism in the latest RICS construction survey telling us?
The latest survey of the construction market by the surveyors’ body RICS provides on first reading some confusion, showing optimism rising sharply while workloads fall.
The survey has produced a mildly negative balance for surveyors’ workloads. Yet it also showed expectations of improvement in workload, employment and profit at levels not seen since the recession.
Curious. What lies behind this surge in optimism among surveyors? Are we seeing green shoots?
Well call me a spoilsport, but it might be worth holding our horses before galloping off to happyland.
Some improvement in expectations may be down to statistical quirks.
Some could be down to weighting issues where the impact of big firms is not fully recognised in the data. Some may be down to the effects of coming off a low base. Some may be down to survivor bias, where firms doing badly go bust and drop out of the sample and so the average sentiment might improve even if market conditions get worse.
Sentiment is also a very fragile and volatile thing, so we should expect it to fluctuate quite a bit.
These effects influence surveys such as this, both positively and negatively. But I’d be a little surprised, thinking about what we know about changes in the industry, if these produced all the effect we see here.
When we look to the outside world the optimism seems a wee bit misplaced.
Certainly the latest future trends survey from the architects’ body RIBA released today provides little cause for exuberance. It shows workload expectations to be negative.
If we look back to the latest industry forecasts released this month they provide little evidence either that it’s time to pop the corks of a few bottles of bubbly.
What is also intriguing is the wording of the RICS press release for the construction survey. It calls for Government to get its act together on housing. Not in those exact words, but that’s the implication.
Private housing would be one of the sectors we’d expect to drive us from recession. The RICS press release hardly suggests it’s flying as a sector in the eyes of surveyors. And it isn’t.
Put all of this data, speculation, sentiment and forecasting into a pot and it makes a curious brew.
Well, puzzled as I might be, my gut feeling is that what we have here is a good-news-bad-news story. I’ll give you the good news first.
My hunch is that the increased optimism among UK consultants is down to the fact that they are in fact doing better and there is increasing cause to think that employment, profits and workloads will increase. So, that’s the good news.
The bad news I suspect is that this improvement in workload is not coming from the UK construction market. Surveyors are increasingly working on overseas projects in their UK offices. It’s employing UK consultants, but UK-based contractors looking at this survey may well be advised to guard against over excitement.
If we look at the ONS data on turnover among architects, and engineers – a wide group I know, but indicative of this group – we see very impressive increases in turnover.
Given the data on UK construction it seems unlikely that this is coming from the home market.
I suspect that what we are witnessing is a very creditable performance by the UK’s construction consultants to win work abroad.