ONS data may point to a slowdown but now isn’t the time to start panicking.
“Extremely unsettling” is how Scape Group chief executive Mark Robinson described the ONS’ most recent statistical release on construction output and new orders, which suggested that new orders had dropped by their fastest quarterly rate since 2014.
“Increased construction costs and general uncertainty already has the industry rattled – and the leaked immigration documents will have sent many into uproar,” he added, referring to a Brexit immigration plan leaked to the Guardian last week.
It’s fair to say that some in the industry are indeed rattled – but I wouldn’t perhaps go as far as Mr Robinson does.
Firslty, let’s put the most recent data into context.
Yes, new orders are worryingly down quarter on quarter, having dropped by 7.8 per cent in Q2 compared with Q1, with the largest falls coming in infrastructure at 16.2 per cent, and private commercial at 15.6 per cent.
Couple that with the fact that there has also been a dip in private housing new orders, at 9.6 per cent, and you could easily suggest the industry is right to be worried.
An accurate representation?
But we have discussed the flaws in the infrastructure data in recent weeks – particularly the modelling, with concerns raised by forecasters that the ONS’s standard modelling of output for the Tideway contracts is not representing actual works on the ground accurately.
The fact that Tideway’s output and new orders data are “front-end-loaded” into 2016, despite the project not starting in earnest until this year, suggests that the infrastructure data doesn’t reflect accurately what’s happening on the ground – and it casts doubt on whether new orders have really dipped by 16.2 per cent this quarter.
The decline in private commercial orders is admittedly more worrying, but at £3.25bn, it’s still higher than in Q4 last year, and well above the majority of quarterly readings we saw between 2011 and 2013, when commercial orders were at their lowest ebb.
And aside from the declines, there were some positive signs, too.
Most notable is a recovery in industrial new orders, which in the main had fluctuated around the £1bn mark since late 2015.
At £1.09bn, orders are now at their highest level since Q3 2015, and are more than double the level they were in Q3 2014 – a good sign that manufacturing, retail, and logistics firms are still investing in space despite any Brexit-related headwinds.
And yes, private housing, long the construction industry’s star performer, may have seen a decline in new orders, with orders dropping to their lowest level since Q1 2016, but again looking back, this quarter’s level was still relatively high at £3.26bn.
That’s higher than any level of new orders in private housing reported between Q1 2008 and Q2 2014.
What the stats point to, then, is not an industry that should be “extremely unsettled”, albeit one that should be cautious.
There are signs of something of a slowdown, which is supported by this month’s Markit/CIPS construction PMI, which showed activity had fallen to its lowest rate of growth for a year.
But that’s the key: the industry is still growing, with plenty of work out there, and construction still has plenty of headroom to grow into.