Construction and industrial output figures released this week confirm that both sectors started the third quarter strongly while suggesting that second-quarter GDP growth will be revised up from 0.7% to 0.8%.
Construction output in July was 1.4% above the second-quarter level, while industrial production was 0.9% higher. Even assuming no further increase in August and September, the two sectors would contribute 0.2 percentage points to third-quarter growth, based on GDP weights of 6% and 14% respectively.
Second-quarter growth was estimated at 0.72% in the last GDP report but increases in construction and industrial output have since been revised up by 0.5 and 0.1 percentage points respectively. The combined impact on GDP growth is 4 basis points – sufficient to push it up to 0.76%, or 0.8% after rounding, assuming no change in the current estimate of services expansion. Services output may also be revised up, reflecting the normal tendency for statisticians initially to underestimate activity in economic upswings.
The improvement in construction prospects was underlined by a 19.7% surge in new orders in the second quarter, suggesting that new construction output will return to 2010-11 levels – see chart. This would entail a rise of about 10% from the second quarter, implying a GDP boost of 0.4%, based on the 4% weight of new construction (with repairs and maintenance accounting for the remaining 2 percentage points of the total 6% weight of construction).
