8 March 2012
There’s a lot of confusion over how well construction is doing. Various indicators point to improvement, other data suggest that the industry is in a hole and looking to dip deeper.
But what strikes me when talking to folk generally is that there seems to have been an upswing in optimism.
There are possible reasons for this, some of the economic data have been pretty positive. Lately we’ve seen increased mortgage lending, stable house prices, rising retail sales and a drop in inflation.
But so what? How can there be cause for optimism in construction of all places when the industry forecasters all expect a dive back into recession this year?
A recent tweet from Noble Francis at the Construction Products Association caught my eye.
He tweeted: “Has everyone entered some faustian pact to try & be positive regarding the #economy despite the market fundamentals… ?”
My thinking on this is that most people can’t stay pessimistic. We just can’t do it to ourselves. So we rebase, find a new lower benchmark and peg our expectations from there.
To find evidence of this I went to probably the most sober judges of how the economy is performing, the Bank of England agents.
These folk tour the country and report back, in sober fashion, how each industry sector is performing. They have no axe to grind either way. What’s more the reports are pithy and to the point.
So let’s examine what the latest BoE agents’ summary of business conditions has to say on construction, for February 2012, and compare it with the February reports in the previous two years.
The comments read:
February 2012: “The level of activity in the construction sector was slightly lower than a year earlier. But the pace of contraction had slowed a little.”
February 2011: “Activity in the construction sector had been disrupted by the weather. Underlying activity was thought to be broadly similar to the level a year earlier.”
February 2010: “Construction remained severely depressed.”
Now let’s consider what these mean in terms of the level of construction.
In February 2010 things were bad. In February 2011 they were just as bad. In February 2012 they were worse, but not getting worse as quickly.
So construction is performing worse now than in February 2010, if we read these correctly.
Now read the tone. February 2010 reads as if the industry is in an awful mess. February 2011 suggests that things are bobbling along ok, but for the bad weather. While the February 2012 report seems to hint at improvement, even if that improvement is a result of things are not getting as bad as quickly.
The least positive sounding report is in February 2010, when oddly, if we read these reports in isolation, the industry would appear to be at its highest point.
So be careful when reading poll results from surveys asking people whether they are more or less optimistic. Just because they are more optimistic doesn’t mean things are getting better.