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We must look behind the gloomy headlines

So what is the real state of the industry then?

While there have been plenty of surveys suggesting things are on the up - a view reflected in an exclusive survey of construction firms on cnplus this week - those further from the action glean a very different picture.

A stream of bad news such as losses for Royal Bam and Sir Robert McAlpine have been compounded by ONS figures showing a 1.1 per cent fall in output during Q1.

With a 2.1 per cent decline having been posted for Q4 2014, the industry could be perceived as heading towards a ‘technical’ recession.

Right reaction

So how alarmed should we be by these headlines and what is their impact?

First McAlpine. The loss is a shock for its size: £89.7m on £788m turnover.

Rumours of problem contracts have been doing the rounds for some time and a change at the top back in October only added to industry suspicions the firm could be suffering.

“Figures feed into GDP, political outlook and are bound to have a bearing too on share prices”

McAlpine, like Balfour Beatty, Morgan Sindall and Royal Bam, has seen its bottom line hit by legacy contracts: jobs won on too low a price with too high a risk.

In McAlpine’s case, it certainly invoked déjà vu of 2001 when that other well-known private firm Laing was sold to O’Rourke for £1 after losses prompted the family to bow out of the industry.

Certainly there is no sense that the 168-year-old McAlpine is anything other than committed to staying the sector, but clients should expect less appetite for risk as the contractor treads more cautiously in picking and choosing its order book.

Confusing contradictions

Now to those puzzling ONS figures. Not only do they seem to contradict sentiment, but also other economic data, such as that produced by Markit and Experian which shows activity is still strong.

No one has solved this contradiction, though one theory points to the way the ONS accounts for cost deflation - the figure used to strip out inflation to make like-for-like comparisons possible with previous data. The mechanism changed in December.

In one sense it’s a little academic if you’re a regional MD trying desperately to recruit more staff or keep costs under control - the sector will always listen to its own heart.

Like financial results, statistics always lag behind the reality on the ground.

But on the other hand, they couldn’t be more important: figures feed into GDP, political outlook and are bound to have a bearing too on share prices.

Of course it’s early days as the new regime at the ONS beds in and the organisation is working with the sector to get to the bottom of this, which is important.

After all, being able to believe official stats helps everyone’s confidence.

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