ºÃÉ«ÏÈÉúTV

The construction industry is about 10% smaller than it was a year ago on a quarter-to-quarter comparison and it has been shrinking at almost £1 billion a month recently.

That’s pretty scary stuff. It should be scaring the pants off the policy makers.

I’ll admit, I have picked my stats for shock value.

And the graph too perhaps exaggerates the impact of the downturn by starting at Â£7 billion rather than zero. But I like to think it illustrates the turning point for construction, showing as it does the 12-month moving average of construction output volumes.

Anyway, however you look at these numbers, as far as we can tell, things are very bad.

Still, now while I have you in a concerned frame of mind, I want to tell you why I think the reality could be worse than the picture these figures might immediately suggest to some.

For me the most disturbing feature of today’s release on construction output from the is the decline in private sector new work. On a 12-month moving basis private new work in commercial, housing and industrial combined has declined steadily since the start of the year.

This hasn’t been helped by some revisions to the private commercial sector. This in effect resized the sector making it about £500 million smaller than we thought it was a month ago.

Revisions like this happen as the data is constantly scrutinised. The revisions can make the figures look better or worse. They don’t however change reality, just our perception of it.

The industry needs to see a flourishing private sector if it is to find enough work to compensate for the savage public sector cuts that will rip out billions in annual output over the next few years.

But on the basis of today’s figures new work in the private sector appears to be heading into recession, rather than growing. And the commercial sector revisions have just underlined the problem.

Looking ahead through the viewfinder of the new orders figures makes that picture even scarier, as we (see graph right).

Both the level and direction of the private sector orders fails to encourage. There is no discernible growth and the level is at about half that seen before the credit crunch.

There is little point in trying to look on the bright side here and hope it will all get better. That is rather akin to hoping the driver of the oncoming train will spot you when you are stood squarely between the tracks.

Yes there are bright spots. Yes there are opportunities. But from a national perspective the Government needs to recognise that the construction industry will continue to drag GDP downward rather than help boost growth, unless it acts swiftly and effectively.

Ultimately one thing drives construction – demand. Either the industry must act to generate areas of growth and demand, through innovative thinking, or the Government must find ways. Demand for construction is unlikely to result from the wider economy during a period of low growth such as the one we seem trapped in. That is not surprising.

Let me illustrate the history with a graph (see right)  I have used before. The graph shows growth rates over three years rather than the customary one year. What we see is that when GDP growth is low for any length of time construction suffers badly. Were I to run this graph with private sector new construction the dips and troughs would be more extreme, but I won’t because the data becomes much less reliable over longish time frame.

Unless we see a swift improvement in the underlying economy or we see a reversal of historic trends, it seems unlikely to me that construction will respond as many hope it will without some kind of intervention.

To put it bluntly, as far as we can see into the future, things look pretty bleak for construction if the economy remains flat.

Time for a construction centred growth strategy, maybe.