GDP came out last week and it was all very exciting. Construction continues to get more coverage, mainly as the figures from the Office for National Statistics (ONS) show that it fell considerably (by 5%) in the first quarter compared with the final quarter of last year. However, that doesn’t make much sense given the bad weather in November and December.

So what is going on with the construction output statistics?

Well, quite simply, there is a significant lag in the data (around four to six weeks).

ONS get their construction data by doing a survey of contractors. ONS took over the output stats in January last year and changed from monthly new orders to monthly output with output now available quarterly.

The problem is that with new orders, anyone filling in the survey knows how many orders they have had in the last month as they just add up what contracts you’ve won.

However, with output, it is not so easy. How much work has been done? Well, someone filling in the survey most likely uses what work they have been paid for in the past four weeks. Yet, the delay between work done, invoice/billing and being paid can be substantial (just ask the specialist contractors).

The point is this. The lag between work done and being paid means that there is a four to six week lag between work and what is reported as construction output by ONS. So, January’s figures actually represent work from a bit of November and then December. As a result, it is no surprise to see that they are lower that what ONS reported for December. Yet, it has a large impact as it is shifting the sharp fall in construction work from last year into this year’s data.

It also means that construction output in 2010 doesn’t have the bad weather affect in so construction didn’t grow as much as the 6.5% that ONS reports and most contractors within the industry I’ve spoken to would also concur that this figure is far, far too high.

The impact is not only felt within construction but on the economy as a whole. Forecasters (not me!) just a couple of months ago were anticipating that GDP would be growing around 1.2% in the first quarter and even 0.8% just a few weeks ago. However, construction as measured by ONS is acting as a big drag on economy and GDP only grew 0.5% in Q1.

ONS are looking at how respondents fill in their survey but whatever happens afterwards, the ONS data is giving a headache to researchers and policy makers alike.

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