Working out a pattern

Frustration among more casual observers was understandable, as one day the construction industry seemed to be teetering on the brink of recession and the next it was called the reason for the economy’s unexpectedly improved performance in the third quarter. When people become concerned about future growth, interest in statistics increases, which is understandable. However, as ever, statistics should come with a health warning.

The PMI indicator is the first piece of construction data covered in the month. It dropped to 48.1 in September, which is its lowest level since immediately after the Brexit referendum in July 2016. Any number below 50 indicates a reduction in overall activity, so this survey raised eyebrows for those in construction.

But only a few days later the Office for National Statistics (ONS) released its latest construction output statistics, which were more positive, saying that construction output grew by 0.6% in August compared with July and  by 3.5% compared with August 2016. However, the ONS has also started reporting longer-term trends in the construction industry,  and comparing the most recent three months to the previous three months shows that construction output declined by 0.8% in August.

So what does all this mean? I sympathise with those who just want a simple understanding of what is going on and get confused by the mixed messages. However, construction has volatile patterns of activity month to month, so I tend to be more interested in longer-term trends.

Those show that levels of activity are lower than at the start of the year, which accords with the view that, after the EU referendum, projects that were under way or in development would go ahead but that the workflow beyond this would depend on the levels of economic uncertainty. It is fair to say that uncertainty still exists and is rising. Until some clarity begins to emerge about the UK economy’s future direction, I would expect construction statistics to be volatile with more negatives than positives.