Brickonomics

Figuring out trends in housing, construction and property


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.

The figures point to more job losses for construction over the year ahead

Brian Green

The latest employment figures show construction losing a further 25,000 jobs in the final quarter of last year, following a slight increase in the workforce in the spring and summer. This leaves construction employment down 20,000 on a year ago.

Taken from the peak in September 2008, the number employed in construction has fallen by 428,000, roughly 17%.

But perhaps of more note is the mix of that workforce. The number of self-employed workers actually increased in the final quarter meaning that the numbers directly employed fell by 40,000.

And over the past five to six years we have seen a marked shift towards more self-employed workforce as the top graph shows. The number of self-employed is roughly the same as it was at the end of 2006 while direct employment is down about 400,000.

Put another way the proportion of self-employed workers has risen from about a third to 40% over the past six years.

And certainly in the short term it is likely that the proportion will grow as the uncertainty in the market  leads employers to reduce the number of workers on the books and make do with a more flexible self-employed workforce.

It is interesting to note that the redundancy rate in the final quarter of last year jumped to the highest level for two years.

The middle graph shows the level of employment in construction relative to the level of output. I have added one of the least scary forecasts for output growth and from that it seems reasonable to assume more job shedding is on the way.

The final graph is one I used last quarter. It shows a crude measure of labour productivity in construction relative to the average over the ten years up to the credit crunch. Also plotted is the number of jobs gained or lost each quarter relative to the previous year.

This crudely shows the sensitivity of the jobs market to the changes in construction output. There is a huge number of factors influencing the productivity in construction, not least the mix of work. But the graph does support the view that even as we stand the level of employment is probably higher than one might expect.

(For the record I believe that the low level of productivity in the period 2004 to 2007 is down to a statistical under counting of construction output in that period.)

For me, however, the important thing is that whichever way you look at the figures they do seem to point to more job losses for construction over the year ahead.

North East aches while London sees growth in construction jobs

Brian Green

Here is a chart that pretty much speaks for itself. It shows the regional change in the level of construction workforce jobs across the UK from before the recession to the summer of this year.

Yesterday I looked at the trends in construction employment (a subtly different measure, but broadly similar) and the likely path of job creation/losses.

I thought today I might dig into the ONS data and extract numbers for the regions.

So I have taken an average of the ONS workforce jobs for the four quarters of 2007 and for the four quarters to June 2012 and measured the fall.

Here are the results.

The pattern is plain. While in London the workforce appears to have expanded in the North East construction jobs are about a third fewer in number.

Hopefully this helps to illustrate the very varied pattern of construction activity throughout the UK.

Why job shedding in the UK construction industry may be about to accelerate

Brian Green

UK construction industry employed about 57,000 fewer people in the third quarter of this year than a year earlier. That’s a drop of about 2.6%.

The ONS data shows that since the peak in September 2007 the fall in the number employed is closer to 380,000. This represents broadly a 15% drop in the workforce.

It’s worth noting that these figures are subject to a lot of statistical noise so a few thousand here or there is pretty meaningless. Furthermore construction employment actually rose slightly in the September quarter to 2.17 million. But employment tends to rise in that quarter, unless the industry has plunge rapidly into recession.

But the year-on-year fall should come as no surprise. Construction workloads are declining fairly fast so a drop in the workforce should be expected.

What is perhaps a little surprising is that the redundancy rates in the third quarter were lower than at any time since the recession began and the number unemployed whose last job was construction is falling.

That said the number of long-term unemployed former construction workers remains stubbornly high, although nowhere near the levels seen in the 1990s. This is understandable in a recession where we are seeing a structural shift geographically in where the work is and isn’t.

So overall the employment statistics for construction don’t appear too alarming given the collapse in workloads we have seen recently. That seems to provide comfort.

However, complacency at this point may be a mistake.

Ok we started to see construction output rapidly deteriotate at the start of the year. But there tends to be a delay in the impact on levels of employment from drops in output. The statistics suggest this may be about six to nine months, but there will be variation in this as firms responses will be governed by levels of expectation and confidence as well as what is happening on the ground.

So it is quite possible that we would not yet have seen in the figures an employment response to the drop in output.

Anyway, to get a feel for where we are I have put together a chart showing the level of output per job and tracked that against the change in the number of jobs compared with a year ago.

The index for the output to jobs is not particularly important, but is based on the average from September 1997 to September 2007.

What we see is that as the ratio of output to jobs falls below a certain level employment levels take a hit. This is not surprising. It simply reflects the need for firms to maintain levels of productivity.

[It’s worth noting at this point that there are different labour requirements for different types of construction work. So a changing mix in the workload will influence these figures, but we will put that to one side.]

We recently have seen moderate levels of job losses (relative to the previous year) as construction firms have responded to drops in workload. But, despite these job cuts, the ratio of output to jobs has fallen over the past year or so and appears to be at what might be regarded as a critical level. This suggests the fall in jobs has not kept pace with the fall in output.

Indeed output in the third quarter of this year was down more than 11% against the same period a year ago. The equivalent drop in employment was 2.6%.

There are two things that worry me here. Firstly the pace of decline of construction is increasing and secondly that there is a delay in the impact that we are yet to feel.

It is not a foregone certainty that we will see an increase in construction job losses in coming quarters. But if we start to see job losses in construction rack up it should not come as a shock.

More importantly policy makers should not be complacent about the construction employment levels they currently see in the ONS data.

Is the UK rapidly building up a future construction skills gap? Probably

Brian Green

For many of those who have seen construction in and out of recessions in the past there will be a familiar pattern emerging. The industry is losing skills that will be desperately needed when the industry rebounds. Read more >

Jobs data point to falling construction employment

Brian Green

The latest jobs data from the Office for National Statistics support the widely held view that construction employment is falling.

And, given that employment data tends to lag output data, we should then expect to see further, perhaps more significant, falls in the number employed in construction in the relatively near future. Read more >

 
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