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Data wars: Output discrepancies muddy the waters

Data from the Office for National Statistics and the Markit/CIPS Construction PMI has not always seen eye-to-eye. Do these two datasets reflect what’s really happening on the ground?

The Office for National Statistics has confirmed a 2.2 per cent fall in output, meaning that in Q3 2015 construction recorded a quarterly downturn for the first time since Q1 2013.

The 2.2 per cent decline was first revealed as part of the Office for National Statistics’ GDP estimates at the end of October, but has now been confirmed in a construction output data release.

Some expected that the monthly figures behind this quarterly fall would be heavily revised, yet the ONS has only made some relatively minor adjustments so far.

The month-on-month fall of 1 per cent reported for July has now been revised down to a fall of 1.2 per cent, while results for August were also updated from an initial estimated decline of 4.3 per cent to 3.4 per cent.

These revisions were not enough to prevent construction posting a quarterly downturn, according to the ONS.

Yet these official figures are at odds with the latest series of Markit/CIPS Construction PMI surveys, which have suggested improvement in recent months.

So what’s the real picture?

ONS revisons

The ONS’s initial estimate of a 2.2 per cent quarter-on-quarter decline in Q3 was met with scepticism from some in the industry.

Lakesmere chief executive Mark Davey said that, although the market is changing, he did “not think there had been a dip in the third quarter”.

ONS output Jan 14-Sep 15 biggest and smallest revisions_ONS

Source: ONS

Similarly, a panel speaking at this month’s Construction News Summit were in unanimous agreement that the industry was still in “growth mode”, with economists arguing that the official data had underestimated the activity on the ground.

In a release preceding last week’s revisions to July and August data, the ONS also added £1bn to infrastructure output in October in a series of revisions – one of which included shifting an unnamed company from the services industry to construction.

A statement from the ONS said it could not confirm who the company was for reasons of confidentiality.  

“The revisions are mainly within the infrastructure work type, and while the reclass is the major source, other late data and seasonal adjustment also caused revisions to the headline figures.”

While industry sources suggest the company in question is Amey, a spokesperson for the firm said it was “not aware of any changes to the classification” when contacted by Construction News, adding that “the firm does not consider itself to be a construction company”.

Following these infrastructure updates, Construction News’s analysis reveals that the ONS’s revised monthly output figures between January and July this year were on average 4.5 per cent higher than its initial estimates.

Markit forces

Whether estimated or revised, recent ONS figures have not always been reflected by another of the industry’s leading data measures, the Markit/CIPS Construction PMI surveys.

Of course, it is difficult to directly compare two datasets that record output in different ways, especially when the methodology differs.

For example, Markit only separates work out by three categories (all work, housing, and civil engineering) while the ONS data covers areas such as public non-housing and R&M.

However, both datasets are used to measure the state of the industry and outline trends in activity.

So how well do they match up?

Over the past quarter, the Markit/CIPS PMI has painted a rather different picture from the ONS data.

The ONS output index, where the base level of 100 is taken from 2012, fell from 115.4 in June to 114 in July, followed by a steeper decline to 110.1 in August and a slight dip to 109.9 in September.

The Markit/CIPS PMI, which is different in that any figure above the ‘no change’ level of 50 represents growth, fell from 58.1 in June to 57.1 in July, then recovered to 57.3 in August before accelerating to 59.9 in September.

Crucially, it remained above 50 throughout, meaning that although the rate of growth changed, Markit’s data suggested output was still growing during all three months of the quarter, in contrast to the ONS figures.

The two datasets also failed to tally in Q2 2015. Markit figures dropped from 57.8 in March to 54.2 in April, but this was followed by increases to 55.9 in May and to 58.1 in June.

The ONS data, however, suggested a fall from 115.5 in March to 113.5 in April, followed by a further fall to 112.7 in May. The index level then recovered to 115.4 in June.

Some believe the Markit data is closer to what the industry is seeing on the ground, including Scape Group’s Mark Robinson, who says “the past few months has consistently shown that contractors are optimistic, with new orders coming in and a strong pipeline of projects”.

Mike Rogerson, UK commercial and operations director at WSP Parsons Brinckerhoff, says that his firm “regularly monitors” statistics like Markit and the ONS.

“ONS statistics do have a part to play in acting as an overall sense check,” he says.

He adds that the revisions to the data “wouldn’t throw us off course”.

“I’m unconcerned by specific revisions that tend to be based on quarter-specific issues.”

R&M stifles growth

However, one leading economist tells Construction News that the Markit data is often “more optimistic” than what the ONS reports.

“I tend to think the Markit data is a bit more optimistic than actual reality,” he says.

“If you look at the ONS data, it’s got its problems, but the slowdown that we’ve seen in Q3 and earlier is just housing coming off the boil.”

And the economist adds that main contractors tend not to take repair and maintenance into account when they question the ONS figures.

“All the forecasts for R&M that we saw previously were far too positive. What the suppliers are seeing is not what the big contractors are seeing, where things are even weaker than they expected.”

R&M is also notoriously difficult to measure, as there is no data on new orders within the sector, despite the fact that it is worth around £15bn to the construction industry every year.

Markit data does not split out R&M, which over the past six months has acted as a significant dampener on overall ONS output figures; this may explain some of the disparity between the numbers.

But although the two datasets do not always match, there are two big positives to take away.

The Markit data is still far ahead of its 50.0 ‘no change’ index level, meaning that activity is still growing.

And though output fell 2.2 per cent in Q3 according to ONS, in absolute terms this was still at its second highest level since Q1 2008.

While debate may continue over the accuracy of rival industry measures, for now the wider long-term trend remains positive.

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