The latest ONS construction output statistics for August, published last Friday, might have caused a few misgivings as the industry digested the first year-on-year drop in output since 2013, and a 4.3% drop compared to July.
Looking at the figures sector by sector, the ONS calculated that all new work was down by 3.6%, while repair and maintenance dipped by 5.6%.
New housing output fell by 3% compared to July. This fall was made up of a drop in private new housing of 1.6%, plus a monthly fall in public new housing of 9.9%. In comparison with August 2014, total new housing output was down by 5.8%.
Private commercial also had a month on month drop of 1.8% compared to July, while output in infrastructure fell by 6.4%. In the repair and maintenance sector, non-housing R&M dropped 6.1% in August compared with July, while private housing R&M work fell by 4.4%.
But the ONS just offers the statistics, not the interpretation. So does this mean the industry’s long-awaited recovery is being constrained by skills shortages, or did it simply experience a summer slowdown because we all collectively went on holiday?
Were the August output figures a monthly statistical bump that will be smoothed out when we look at June-August or August-November, or will it be the start of longer term trend?
Or are we seeing the follow-through from a slowdown in contract awards and starts leading up to the election?
Here’s our sample of vox pop responses from the experts:
Noble Francis, economics director, Construction Products Association
The indications we had, from speaking to manufacturers and contractors, is that activity did slow in July and August, but then picked up again in September. And it didn’t seem to be weather-related, members and contractors didn’t indicate that the weather was a serious issue.
But they did indicate that skills was a big issue, not just in bricklaying but also more widely and at managerial level. And where they did get hold of skills, it’s more expensive so obviously that affects the viability of projects. So you might have a slowing of activity while negotiations take place, between clients and contractors, and contractors and subcontractors.
New orders placed in 2013 and 2014 should be feeding through, but costs have increased considerably, so in some areas, like commercial, you’ll have renegotiations. While this goes on, you might end up with an extended period when activity slows, but it’s likely to pick up later this year. We think the slowdown might have continued into the first half of September, but after that output is expected to go back up.
If you look at commercial, infrastructure and housing, all the drivers are positive, for instance housing starts for the year to date are 10% up on last year.
Alasdair Reisner, chief executive, Civil Engineering Contractors Association
The figures are nothing to scare the horses, the general trend is reasonably positive, and certainly when you look at the figures for infrastructure over the past five years it’s been rising steadily, so the fall off in the one month gives me no concern whatsoever.
In 2012 we saw a similar dip one month, and I remember the next month it went back up again.
I very much doubt that it’s because of skills shortages, we’ve not seen any evidence [in CECA member surveys] of work not going ahead, or projects slowing down. Stuff being delivered now was procured three or four years ago, and was resourced for then.
Yes, recruitment is harder now than it was two to three years ago, but I’m not getting calls from members saying “what do we do about the skills issue”. It’s a pot-boiler issue for the industry, and something we need to keep an eye on, but I don’t think skills shortages are critical for projects.
Tom Crane, economist, Glenigan Group
I think the data is picking up a relative slowing, although probably a temporary one. At Glenigan, our data tracks projects as they start on site, and in March/April to July, we saw a reduction in projects starting in the commercial sector, which we’re attributing to the election creating a reticence among clients.
So it’s understandable there’s a pause, and it’s not surprising there’s a dip in output. Most of the drop seems to be in repair and maintenance which fits with that story – with infrastructure or social housing R&M it’s easier to hold back for a few months.
In the new build/commercial side, we saw starts that were relatively weak around and after the election, so output will probably stay relatively weak in the next quarter, but then we saw a strong level of starts from September so we’ll go back into a growth spurt in six months.
Brian Green, economist and commentator, Brickonomics
The ONS figures are broadly reflecting the state of the industry, and yes, skills shortages are restraining growth and making people more picky about the work they take on. Do I think the industry is growing less fast than other indicators would suggest? Yes, I do. I think housing has slowed, because we’re seeing the end of the “re-stocking” effect, when all the sites that were ready to go were activated close together. So the figures do suggest we’re not seeing rampant growth.
Any industry coming back from a shock like the recession will behave in a jerky and inconsistent manner, so one has to be cautious about interpreting the data.
And the data doesn’t really show you what’s going on, for instance it will give you the volume of work but not the margin it’s won at. And what we’re also seeing is some contractors realising they’ve overstretched themselves, and then thinking about what parts of the industry they want to be in – so that will have an effect on output.
