Construction sector growth is fast enough

Purchasing managers’ index data confirms upward trend

The purchasing managers’ index data recorded the 11th successive month of expansion in the construction sector and the fastest rate of growth in three months. Photograph: Alan Betson

The purchasing managers’ index data recorded the 11th successive month of expansion in the construction sector and the fastest rate of growth in three months. Photograph: Alan Betson

Tue, Aug 12, 2014, 01:00

Almost every day brings an economic statistic or index of one sort or other on the back of which the sponsor or author invariably attempts to build a forecast for that sector and, all too frequently, for the broader economy.

The forecasting skills of economists have been examined sufficiently by now to ensure that all such exercises carry significant health warnings. But that is not to say that they should be ignored.

And several pieces of recent data point to a return to health for the construction sector – not least purchasing managers’ index data yesterday.

The headline figures are strong in their own right – the 11th successive month of expansion in the sector and the fastest rate of growth in three months. The increase in activity in the housing sector was the highest in the 15-year history of the index. Commercial activity is also growing strongly and even the beleaguered civil engineering business is close to growth.

But, beneath the top level, the data are possibly more instructive, especially on the employment front. With employment growth running at three-month highs, the usage of subcontractors increased at the fastest rate since before the bust.

As a result, their availability fell faster and their rates they charged rose faster than any time since November 2004 – real Celtic Tiger territory. And that despite what the report called a “perceived reduction” in the quality of their work.

Certainly, for the first time in several years, you now hear people complaining about being on waiting lists of months for routine home upgrade work. These figures are corroborated by data elsewhere on sales of commercial light vehicles – the classic “subbie’s” transport – which in the seven months to July are running more than 44 per cent ahead of the same period last year. Last month alone, sales were 91 per cent ahead of July 2013.

Yes, the six-year correction to 2013 means all activity is being measured off a lower base – and the Government’s home-renovation incentive programme will have played a part – but, while clearly nowhere near bubble territory, it seems likely that the construction sector is now growing as fast as is prudent.

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