Brickonomics

Figuring out trends in housing, construction and property


Rise in self-employment eases as construction employment prospects improve

Brian Green

The latest construction-sector labour market data is encouraging, if you are a worker that is.

The data show the level of employment at the end of last year was at its highest since 2009. Unemployed former construction workers are now as thin on the ground as they were in the best of times before the recession. And wages appear to be steadily improving. The earnings data suggest total average earnings within construction were up 3.6% on a year ago.

As we see there has been an increase in the “army” of construction workers (those employed and those unemployed, see third graph) over the past year or so. But the progress of rebuilding the construction workforce is slow. The 40,000 increase over 2014 probably owed more to renewing contacts and contracts with labour agents in Eastern Europe.

So with labour in short supply and demand rising. Things look bright for construction workers.

Jobs feb 2015No doubt employers hearing this “good news” may see it rather differently. They will see looming skills shortages and rising labour costs. They will see management headaches with increased uncertainty over both the cost and the availability of labour.

Naturally they’ll do what they can to reduce this, but what?

Well they will look to foreign shores and are already doing so.

But perhaps there’s a hint in the data of another strategy.

One of the more notable details of recent construction labour market data is the pick-up in direct employment and the easing in the growth of self-employment.

Now there are lots of possible explanations for this.

The rate of self-employment is driven by many factors: the desire or need of a firm or a worker for flexibility; redundant workers turning to self-employment while looking for full-time direct employment; uncertainty within firms over the skills needed or the work coming through in the medium term; the level of interest shown by HMRC over clamping down on abuse of the lower tax available through self-employment; and other host of other things.

But here’s a thought. Could the rise in direct employment and a slowdown in the rise in self-employment be a sign that firms are looking to reduce uncertainty? Are firms taking more workers on the books with the aim of controlling risk around labour availability and price shocks?

The data are limited and the time series not that long. But I charted the annual increase in total average earnings against the proportion of self-employed in the construction labour force (see bottom graph).

It’s a simple graph that does not account for other influencing factors. But it seems to suggest that on balance as pay rises increase the level of self-employment in construction eases.

So perhaps we should expect to see the balance between the self-employed and directly employed shift in coming months.

Construction’s daunting challenge: Find one million new recruits in a decade

Brian Green

Construction will see faster employment growth than any other of the six major business sectors, according to projections by UK Commission for Employment and Skills.

Between 2012 and 2022 the average annual rate of expansion in the construction workforce is put at 1.4%. That compares with 0.6% for the economy as a whole (see top graph).

UKCES 1Even when you look at the economy divided more finely into 22 sectors, construction still comes out third, after information technology and electricity and gas.

One startling figure in the wealth of data published in this research is the implied need for construction to find more than one million new recruits in the 10 years from 2012 to 2022. A daunting challenge.

But, for me, the mind-blowing figure in the whole array of data is that, with the steady decline in skilled trades in manufacturing and other sectors expected to continue, more than half of all new skilled trades jobs created in the UK between 2012 and 2022 are projected to be in construction.

That should place construction central in the minds of careers advisers. If a youngster is looking for a solid skilled trade for a career, construction is the first port of call.

The scale of growth presented by the UKCES projections amplifies the message from the recently released by CITB’s Construction Skills Network that the industry needs to recruit heavily.

The assumptions, base years, definitions of construction and the methodologies used will differ between the two studies. But, while UKCES takes the narrow definition of construction, its projections are more dramatic than those of the CITB. The UKCES projection implying a need for an average of 100,000 new faces a year between 2012 and 2022 compares with CITB’s latest forecast of an annual recruitment rate of just shy of 45,000 between 2015 and 2019.

One part of this difference may be explained by the horrendous demographic bubble in the age profile of the current crop of construction workers. There’s a high proportion moving into their 50s which suggests a likely acceleration in retirements over the next 10 years.

Looked at from the point of view of those considering a career in construction, an industry offering jobs for 100,000 new faces over the next decade is fantastic news.

You’d think this would be cause for celebration. And it should be.

Sadly looked at from a wider perspective it just adds more worry to an industry wondering how to cope with expanding demand. A major reason why the projected growth in construction jobs is so high is that so much of the workforce was lost to the recession.

The other issue, put bluntly, is that the cost to train a million new people from scratch would come in not far shy of £30 billion. That’s a £3 billion annual bill before you add in the cost of ongoing training of the existing workforce.

Both sets of projections underline the massive task ahead rebuilding the construction workforce. And there’s little hope of finding slack to call upon from among unemployed former construction workers. Those numbers are back to pre-recession levels.

The latest construction survey by RICS, the surveyors’ body, shows skills shortages at their worst since the boom years before the recession. Furthermore, RICS conducted some research that led to the rather apocalyptic headline “Will 2019 be the year that the UK stops building?” on its website. Apparently the research showed firms turning down work at a disturbing pace through lack of resources.

The truth is, as a nation, we screwed up in the recession, allowing a strategic industry to atrophy and blindfolding ourselves to the obvious need to have the industry at near full throttle when the recession eased. I say “we”, but I really mean the folk that administer this country.

But for all the mess that the industry must manage in the short term, projections suggesting strong job opportunities in the industry should be welcomed. It must be seen as an opportunity, a base on which to rebuild the industry for the future.

The data stem from the UKCES Working Futures programme (see The Future of Work report published in February 2014). Clearly, whether you accept the numbers or not, they make for interesting reading.

The projections suggest the construction industry will employ in 2022 more people than at any time since 1990. But the biggest growth rates will be in management and technical occupations rather than in the more traditional skills.

The implication is that the profile of the construction workforce will steadily become a more white collar industry. The second graph shows the expected shifts in the proportions of occupational types in construction between 1992, when many of today’s main crop of construction folk were building a career, and 2022.

UKCES 3However, the biggest task for the industry in terms of sheer number will be in recruiting and training skilled trades. The UKCES projections suggest it needs to find about 461,000 in the period 2012 to 2022.

There will be on these projections proportionately two thirds more senior managers and professionals, two thirds more in sales and customer services and about 40% more associate professional and technical staff. Administration and elementary skills meanwhile will have shrunk by about 40%, plant operatives will decline by about 20% relatively.

Importantly the projections suggest that the proportion of skilled trades will remain broadly similar. This will remain the core of the industry continuing to represent more than half the industry workforce.

The shift is expected to be mirrored in the educational background of those within the industry. From 14% with education rated above A-level in 1992 the proportion was put at 21% in 2012 and is expected to rise to 30% by 2022. The numbers with higher degrees and doctorates is expected to more than double.

Boiled down, to make this scale of transformation within the industry, the implication is that newcomers to construction are expected to be on average far more highly educated.

Perhaps depressingly, especially given the reshaping in the roles expected within the industry, the UKCES projections don’t see the proportion of females rising in any meaningful way.

UKCES 2However, this is partly because of the proportionate fall in administrative and secretarial jobs. Women’s faces will continue to become more present in more senior roles, although by 2022 the projections suggest they will still be fewer than one in five.

The data also allows us to explore where the rise is likely to happen. Here one needs to be a bit cautious because of the fickle nature of construction demand regionally. The third graph shows how across all regions the expansion of the construction workforce is projected to easily outstrip employment growth within the economy as a whole.

Clearly the challenge to find one million new recruits will be a daunting one across the nation. But the more pressing challenge is for the industry to turn this pressing threat into an opportunity to build a better industry for the future.

Here, I feel, the Government rather owes the construction industry major support if it truly is wedded to having a long-term economic plan.

 

Déjà vu, predictability and the challenge to fill the construction skills gap

Brian Green

UK construction needs 44,690 new recruits a year for the next four years at least, says CITB following its Construction Skills Network research.

Last year it put the estimated annual recruitment requirement at 36,400. The year before, it estimated 29,050. The pressure seems to be growing.

Set this against the 7,280 apprentices completing in England in 2013 and the picture looks really rather depressing.

It’s hard not to be maddened by the inevitability of this rapidly growing workforce problem. I’ve found plenty of reasons to blog (not least here) on the predictable roadmap to a skills crisis for more than two years.

So what now?

From where the industry stands now there’s little hope of turning out enough suitably qualified construction workers to fill the expected skills gap in the short term. That is without a major plan leading to a scale of state interventions not seen since the early post-War years. I’ll not hold my breath.

The pool of ready-made unemployed construction workers is as small as it was during the boom, so little hope there.

There’s a chance older workers already in employment may hang on a bit longer. They seem to be. But that just buys a bit of time unless the industry finds new ways to employ those who find the physical side getting too much.

There’s hope that, with a more attractive outlook, former construction workers who found work elsewhere might be tempted back into the industry. And there may be some with similar skills in industries in decline that fancy moving into construction.

The attraction would become more significant if pay in construction rises rapidly as a result of the shortages. Tempting such people will help. It must be tried. But I doubt it’s a complete solution.

The industry could look to reducing its labour input. That pretty much means prefabrication to the lay person or modern methods of construction (MMC) as it’s described within business. You’d expect labour productivity to go up, as well as overtime. But major changes tend to happen gradually in construction.

So what’s left? Well the labour agents of Poland, Portugal, Latvia, Lithuania and Hungary, among others, will be once again licking their lips in anticipation of a bonanza.

OK, the irony doesn’t escape me either that prominent among the tattoos on the skin of this Government were “economic competence” and “get tough with immigration”.

But what do we have?

Such a massive hole in the construction workforce would have been avoided had more direct public investment in house building, schools and other essential infrastructure been forthcoming. I’ll not rerun the case for weighting public capital investment towards downturns, but simply say these things we desperately need for our future prosperity could have been bought more cost effectively by the nation when the private sector was in decline and Government borrowing rates were negligible, if not negative.

So what realistic short-term option will construction firms find to fill the hole in their labour force?

More migrant construction workers.

Surely this is not a situation this Government would have willingly chosen. But it is the predictable result of its choices.

Now I know it’s a cliché, but where’s the long-term joined-up thinking?

It’s desperately needed as the construction industry, no doubt with a sense of deja vu, navigates its way once again up the slope from a deep recession.

Perhaps of more immediate importance is the need to avoid silly short-term knee-jerk policies.

Am I asking too much?

Immigration tops the nation’s concerns according to Ipsos Mori’s “The Most Important Issues Facing Britain Today” poll in December.

Will vote chasing politicians in vote chasing season steer us towards tighter immigration controls?

If they do that really would leave the construction industry facing serious problems, both in the short and the long term.

What do we need more: people to build buildings or people to deal in them?

Brian Green

Here’s a question posed by the labour market figures: Why since the recession hit do we have more dealers in buildings and fewer people building them?

From the heady pre-recession days there seems to have been a 17% expansion in employment among dealers in buildings while employment among builders of buildings has shrunk 20%?

That seems to be what the employment data tables in the ONS labour market data release tell us.

Despite talk of a strong revival in construction, the 5% growth in real estate jobs over the year to last September overshadows the 2.5% growth in construction jobs.

To horny-handed sons of toil in construction all this will seem like a very strange way to rebalance the economy. It will seem a bizarre way to solve the housing crisis. It will seem fantastically inefficient. Indeed from all angles it will seem plain wrong and in need of some convincing explanation.

In fairness you can shrink the apparent problem by choosing different statistics. No this is not about lies damn lies and statistics. It’s just measuring a squidgy moving target is a lot more complicated than some people think.

The figures don’t look so bad if you examine the ONS preferred measure of short-term employment trends, the workforce jobs data. They show a drop of 11% for construction and a rise of 9% for real estate activities.

For my money the workforce jobs data may be better for most industries, but the fragmented itinerant nature of construction and its high level of self-employment present real problems in collecting and scaling the survey data. So the reality may be much worse than these data suggest and far closer to the bleaker picture painted by the employment data provided by the Labour Force Survey. But that’s a guess.

One advantage of the workforce jobs numbers is that they can also be broken regionally.

Estate agentsLooking at the data that way does however torpedo any hope of finding an explanation in a quirk in regional distribution. It’s not just a London and South East thing. In all regions bar Yorkshire and Humberside real estate jobs are in greater numbers than at the pre-recession peak.

(That said the data does reveal one very peculiar oddity. The biggest percentage growth in real estate jobs, by some margin, is in Wales. Don’t ask me to explain that one.)

As for construction jobs, there are far fewer in all regions bar London and the South West. Think wealth and the migration of wealth and you might find and explanation for that pattern.

There is of course another obvious suspect when we scour for an explanation for the phenomenal rise in estate agents – the rise of buy to let and private renting.

If you care to look at the numbers, cast them how you will, but the rise and fall in buy-to-let mortgages corresponds very neatly with the growth rate of real estate jobs.

That’s alright then, problem solved, we can explain why there are more estate agents jobs.

Well hang on. That’s not the real question.

The real question is whether it is more efficient to employ people in what is mainly transactional affairs rather than in productive affairs.

That I will leave to some clever politician or economist who can explain to me, and I suspect a rather perplexed construction industry, why in the face of a shortage it is imperative we increase the numbers of people allocating resources rather than the numbers creating them.

Construction jobs growth appears solid but not spectacular

Brian Green

The number of people employed in construction is up 3.3% on a year ago, according to the latest ONS Labour Market data.

This finding underlines official data showing a steady rise of the industry from recession. Output in the second quarter was up 4.5% up on a year ago.

Employment and output Aug 2014The growth in workloads is solid, but by no means a boom-time level, and like output the rise in employment stalled in the second quarter.

There are of course always reasons to question the data. One question I might ask is whether there has been a sharp increase in overseas labour coming into construction. This would most likely have been missed in the surveying.

We also have to wonder whether employment levels would have been higher if there had been a larger pool of unemployed and trained workers to call on. Unemployment has fallen sharply for those seeking work in

Employment selfemp and ue Aug 2014These are things we can’t know from a quick scan of the Labour Market data. Taking the data at face value and in a wider context, however, we see a picture of a continued improvement.

But we also see the emphasis on job creation firmly centred on the self-employed. In the second quarter level of self-employment was 6.7% up on a year ago, while the level of direct employment was up just 1%.

The industry has lost about 350,000 employees on this measure since the peak in 2008. In aggregate numbers this loss has been within those employed directly. The level of self-employment recorded over the past year suggesting it is at or above the former peak.

Construction army Aug 2014Looking to the future the concern has to be where to find new blood to fill the jobs being created. Unemployment has dropped to levels consistent with a tight jobs market. The growth in the number of employed and unemployed construction workers is slow, as we can see from the bottom graph.

There is no great “reserve army” in the UK of skills waiting to take the jobs increasingly on offer from the industry. Meanwhile the age profile of those within construction has risen, suggesting a faster rate of retirement in the future.

Within this context we can expect to see a rapid rise in foreign labour and we should not be surprised by rising costs.

Women lead the charge as construction employment rises

Brian Green

Employment in construction grew in the final months of last year 2.6% relative to the same period a year earlier, according to the latest ONS data, providing further evidence of an expanding industry.

The figures suggest there were about 56,000 more people working in construction at the end of last year than at the end of the year before.

Employment

As we can see from the top graph there is a slight rise in employment that corresponds to a rise in work done.

But below this overall figure lies a few interesting nuggets.

For instance the growth over this period came more from women (31,000) than from men (24,000), despite the fact that about women account for less than 14% of those employed.

You don’t want to read too much into this, but it does suggest some of the roles in construction where women tend to be more prevalent may be being restored – we might for instance look to sales, marketing or administrative functions.

Certainly roles such as these would have taken a beating as the recession bit and it’s worth noting that proportionately women took a much bigger hit than men in terms of job losses through the recession.

It’s only supposition, the data do not allow us to see exactly what roles are being created, but if firms are rebuilding their administrative and marketing teams, this is a healthy sign. It indicates that firms are more confident in the future and are rebuilding the infrastructure of their businesses with a view to growth.

The fact that the increase in the number of women came from growth in employee jobs not self-employed roles lends some support to the supposition that the increase in employment of women is within white collar rather than blue collar jobs. It was direct employment where the cuts were deepest for women.

The number of women in construction is still more than 20% down from peak against a bit more than 13% for men, so I wouldn’t read the faster increase in growth of women in the industry as a sign of times changing. Not yet at least.

Another nugget is that the data showing a continued rise of self-employment. Self-employment rose 5.8% compared with 0.7% for direct employees. There are now more self-employed in construction than at the peak. And as the second graph shows the gap between the number of self-employed and directly-employed is shrinking. More than 45% of men in the industry are self-employed.

A third nugget is that the overall “army” of construction workers which include those that are unemployed has risen for the first time since the recession. This can be seen in the third graph. What is encouraging is that the growth came despite a fall in unemployment. The number of unemployed former construction folk is down to the lowest level since mid 2008.

While this is good news for the people concerned, it is unsettling for the industry as a whole in that it highlights again the desperate need to train.

Meanwhile for those who are looking at the top graph and seeing increased productivity, it is worth noting that the figures at this level might be misleading. Each sub-sector of construction has a different labour usage, so changes in workload mix impact on the demand for labour as well as growth.

It’s worth noting that one sector that came out of the recession larger rather than smaller was infrastructure, which tends to employ far fewer people for a given amount of output.

Looked at overall, the figures are positive, encouraging even, but far from spectacular.

 

 

Jobs data shows the very uneven recovery for construction

Brian Green

The latest set of Office for National Statistics figures for jobs in the economy does provide reason to be encouraged.

The national construction jobs figures provide relief in that there were at least as many jobs in September this year as last. Indeed the figure of 2,070,000 workforce jobs (seasonally adjusted) is the highest for three years.

So we may be seeing a turning point with potentially sustained growth in employment in the coming months. Though in fairness most of the improvement in the construction jobs scene has come from self-employment rather than direct employment.

A closer examination of the construction jobs figures regionally, however, leaves plenty of scope to get a little bothered if you live and work near the M62 corridor. Construction jobs in the North West were 3.5% fewer in the three months to this September than a year ago, while Yorkshire & Humber saw a drop of more than 11%.

This contrasts with those plying their trade in and around London, who are seeing a very different construction jobs market. There was a rise of more than 5% in the number of construction jobs in the capital over the same period. Meanwhile in the abutting Eastern region jobs were up almost 7.7%.

This further strengthens and existing trend. While , according to the workforce jobs data, the industry has lost about 256,000 jobs across the UK between September 2007 and September 2013, in London there was an increase of 37,000.

Before the crash jobs in London accounted for about 11% of those in the UK. That figure is now above 14%.

We have seen a structural shift in the industry. Half of all construction jobs in Great Britain are now in the south (London, South East, South West and Eastern regions). This compares with about 45% before the recession and about 44% 20 years ago when the industry was pulling its way out of the 1990s recession.

The proportion seems to have been similar to that 44% back in 1981, according to census data. So the current regional spread of construction employment appears unusual.

The real question these figures pose is how successfully will the recovery, evident in London, spread to the rest of the nation and boost employment there. Or are we looking at a permanent and marked shift southward in construction workload and the jobs that go with it?

Sustained output growth is just the start of a long recovery for construction

Brian Green

The latest Markit/CIPS survey of construction activity came out yesterday grabbing big headlines and very possibly spectacularly misinforming the general public.

The most common interpretation seems to be: “Construction grows at fastest rate for six years.” This is not surprising because it was what the Markit release actually said.

Growth 1I’m not saying this is bonkers, but it would surprise quite a few people if the official construction output figures record the fastest growth in six years in either the third or the fourth quarter of this year.

The third quarter preliminary estimate of GDP put construction growth at 2.5%. This is pretty strong for a quarter. But growth in the second quarter of 2010 hit 5.9% after first quarter growth of 3.1%.

I’m not seeking to be pedantic, here. But there’s a problem. The strident headlines suggest to the general public and policy makers that things in construction are pretty tickety-boo. They’re not.

Industrial performance should be more seen more as a marathon than a sprint. So we should be more nuanced about pace and acceleration and what they mean.

So let’s have a go. Let’s look a bit closer at the data and the context.

Firstly the Markit/CIPS index may be at a six year high. This doesn’t mean that growth is too. The index is not a measure of aggregate volume in the industry or change in aggregate volume for that matter. So as an index it shouldn’t be seen as a measure of actual growth.

It’s just possible that a lot of firms are feeling at least a little better. This would boost the index more than a few people feeling very much better, even though the latter could provide more growth. There are of course a few other issues with surveys such as this but I’ll not repeat them yet again.

By way of comparison it’s worth looking at the scores for construction provided by the Bank of England Agents. These seem to provide a more sober view of the state of the sector.

Growth 2

The figures are created from intelligence gathered by the Bank’s agents. Again they’re not exactly a measure of growth rates, rather a view on the health of the sector. In my view these data seem to map slightly closer to the official output figures.

That said the Bank of England data chimes with Market/CIPS and indeed with the RICS construction survey and RIBA’s Future Trends survey that came out last month. Things are improving.

Importantly this improvement is being felt on the ground. The latest NSCC survey of the construction specialists shows enquiries, orders and recruitment all increasingly positive (see left).

Furthermore we will see next week the Construction Trade Survey – compiled by the Construction Products Association and covering surveys of members from range of industry sectors. This will show the breadth of improvement within the industry. And the media is awash with other trade surveys and general economy indicators that look favourable.

Fantastic. But before getting carried away let’s explore what lies beneath, what lies ahead and what challenges the industry faces on the way.

As mentioned earlier construction growth – at least as far as the official figures are concerned – was very rapid growth in 2010. It didn’t survive much beyond the General Election.

Starting with the challenges facing the industry, probably of most note is that recovery will be a prolonged process for an industry ravaged for six years or more. There’s a need to invest to rebuild the industry. That means spending on training, investment in new equipment and IT.

Just looking at employment, large numbers have left the industry. Those remaining are on average older, so –despite a higher retirement age – the industry will be shedding skills fast. This means a lengthy period of recruitment and training and probably investment to improve productivity.

Profits too will need to be rebuilt. Many firms have been working at an operating loss, eating into their reserves and holding off investment. This cannot be sustained. Construction prices will rise, at least in the short term.

Meanwhile main contractors have to work through a raft of contracts bid at ludicrously low prices against a headwind of rising subcontracting, labour and materials prices. This could well send some under, further damaging the fabric of the industry.

Then we have the aspirations of the Government-Industry strategy which is calling for improvements and cost savings. That means yet more investment.

That all amounts to a big challenge.

Growth 3Then let’s look at what’s actually driving the recovery. Well, in part you’d expect a recovery at some stage and as the third of the graphs shows it’s been a long time coming. And actually, on the current data, it doesn’t look that fantastic so far, if you scale for the numbers of adults overall and in work.

The turning point seems to have come about a year ago. How much the Funding for Lending scheme, launched in July 2012, helped is hard to know, but it seems to have supported the growth after the economy appeared to be heading for yet another recessionary dip.

On top of that we’ve had Help to Buy, which has underpinned recovery in house building and fuelled excitement in the housing market more generally. This almost inevitably will have fed through into greater consumer confidence, at least among homeowners.

Global instability has made London a city of choice for a huge amount of international wealth, while the easing of fears of financial mayhem in the Eurozone has made investors more willing to invest in development. This has all supported construction, especially in London.

But of huge importance all the above has been set against a monetary policy backdrop looser than any seen since before William and Mary where on throne.

Meanwhile on the fiscal side the Government’s austerity, while I would argue grotesque on the capital spending side, has perhaps not been as harsh as some might have thought. Furthermore employment levels have held up rather better than most expected as workers took cuts to pay rather than cuts to numbers. This has, in part, provided less pressure than might have been expected on the Treasury coffers.

And let’s not forget George Osborne is a very political Chancellor. Rebalancing the economy – the little we have seen – seems to have pushed to the back seat as he seeks to conjure growth. He knows he needs the economy to be jollying along as the nation walks towards the poll booths.

So what lies ahead? Well there is, as always, in economics a few twists. Many of the policies currently in place and much of the benefits the economy is receiving are simply the result of the awfulness of the pickle we’re in. As we un-pickle ourselves these will, in time, vanish.

Help to Buy may be a quick victim if the housing market starts to run riot, or more of a riot as some would see it. Interest rates will most likely rise earlier the stronger the recovery. Stability abroad may make London a shade less attractive.

Basically the faster we grow the quicker the shutters come down on the sweet shop.

And then there is the General Election a year and a half away. What does this mean for policy post 2015?

So while it is easy to get excited about the recovery in construction, and it is welcome, the reality is that growth is just the start of what is likely to prove a long hard struggle along a bumpy old road for many firms and the industry as a whole.

Government survey suggests construction firms in England are doing much better, are they?

Brian Green

The latest quarterly English Business Survey produced by the business department BIS adds further weight to the notion that the construction market is improving.

The survey uses a weighed balance and showed 30% more construction firms saying workload picked up than saying workload shrank between the first and second quarters of this year. Given that about a third saw workload stand still that is an impressive majority.

Other highlights include a 26% positive balance expecting to see workloads increase next quarter, a 21% majority saying more work than a year ago, a 15% majority saying more employment than in the previous quarter.

Meanwhile a 12% positive balance said labour costs went up and a 13% positive balance of firms expect them to rise again in the coming quarter.

On the face of it this all sounds quite categorical. It suggests we had a pretty strong improvement in the industry in the second quarter.

But what does it all mean in practice? Let’s look at what the hard statistics can provide us with as a guide to what actually happened.

For workload we have a problem because we are comparing GB statistics with English Statistics. But what we find is that construction output on a volume seasonally adjusted basis actually rose in the GB by just 1.9% in the second quarter.

That’s not a great deal, but noticeable, although how noticeable is a moot point given that the industry has been bouncing up and down by that amount quite a bit of late.

If, however, we look at the current price non-seasonally adjusted data suggest a rise of 8.2%. That’s quite a lot. And a 7.1% rise if we take account of inflation. So if we are looking at cash things were up a fair bit.

But if we look at the volume data comparing this year’s second quarter with a year ago we see a rise of just 0.4% and 0.3% if you use the non-seasonally adjusted figures. That is hardly noticeable. Ignore inflation and we see a rise of 3.1%. That will be noticeable, but so will the effects of inflation.

Now let’s look at employment data. Here you can get workforce jobs numbers just for England. These show a rise in the total English construction workforce of 0.5%. Not a lot. But what we also see is that the number of directly employed is rising slightly faster than the self-employed numbers.

Looking at the output and the employment figures in the round my view would be that we are seeing an industry pretty much flatlining with a hint of improvement.

That seems a bit at odds with how we might interpret the English Business Survey results.

Well yes. But this is to be expected. Here’s just one reason why we have to be cautious with our interpretations of what are really sentiment surveys. I’m not sure all those filling in the questions pore over their books to find exact answers, my gut feel is they use their gut feel. So if they feel better they will shade up, if they feel worse they will shade down.

That doesn’t make these surveys false or bad. In fact in some ways you may be getting a different take on what’s happening in the real world through the change in sentiment that adds texture and helps your understanding.

There are of course other things that influence these surveys. Do the respondents look at the cash or the amount of work? Is there optimism bias? Is there survivorship bias effects?

Probably all of those things come into play, aside from the statistical and methodological issues associated with the survey itself.

But the point to note is that construction folk feel a bit happier about their lot. That’s a good thing.

The trick, however, is not to get carried away with sentiment surveys and end up disappointed when things are not as rosy as they are portrayed.

Construction jobs figures provide reasons for hope and signals for action on training

Brian Green

It’s only one quarter’s figures and we should be cautious of statistical quirks, oddities such as last year’s Jubilympics and weather effects, but there is more promise in the latest construction jobs figures than might have been expected.

Certainly the generally improved mood will mean that firms are more willing to hold onto quality people than they might have been.

And there is a hint of this in the figures which show a small drop in the numbers, but an increase in those directly employed compared with a year ago. We see a vague hint of this in the uptick at the end of the red line in the graph taken from today’s ONS data.

What is of particular note is the drop in the number of construction folk unemployed. Having risen to 250,000 in 2009, the number dropped to 141,000 in the second quarter of this year. This is slightly below the average over the past 10 years and well below the level when construction emerged from recession in the 1990s.

When we look at what might be described as the available army of construction workers (including those employed and the reserve army of the unemployed) we see that the numbers continue to decline. The second graph plots the difference between the total numbers each quarter compared with a year earlier.

This and the ageing profile of those within the industry is what is beginning to tax organisations such as CITB, which is warning of a construction skills time bomb.

I have witnessed at least three of these “time bomb” warnings from the CITB over the years. They have never exploded, so far. The industry merely adapts to the circumstances it finds either through changes in techniques or the importation of labour.

But while the metaphor may be wanting, the reality is that a lack of skills does make for a far less effective and efficient industry. This is not good for the nation.

Furthermore it is a waste of national resources and societally regressive when skilled workers are shipped in from abroad when for want of training there is a huge pool of potential labour in need of work at home.

The warning signs are here. There is a far smaller pool of available labour unemployed than there was as construction emerged from recession in the 1990s. With an ageing profile retirements are likely to be more frequent, so the pool in work will probably shrink faster.

This means the need is there to start a huge training programme now.

And why not give hope to young kids with fading hopes who are looking to build a future after the worst recession in living memory.

 
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