Models of UK private sector quarterly construction demand

Abstract

An analysis is made of private sector construction demand (quarterly new orders) grouped into housing, commercial and industrial construction, respectively and their relationship with a priori selected leading indicators of GNP, price level, real interest rate, unemployment and manufacturing profitability over the period 1974–1988. The results indicate that different variables explain the trends in these private sector construction demand subsectors. While construction price appeared to be an important elastic influence in housing investment, it was not found to be an important factor with respect to commercial and industrial construction. Trends in commercial and industrial constructions are explained by manufacturing profitability and economic conditions. The level of unemployment influences commercial construction only and with a negative inelastic relationship. Lead indicator forecasts of the groupings of private sector investment are above 10% accuracy due to the unusually deep cut in private construction as a result of the recession although the models expect increasing trends in these series. The implication of this level of accuracy is the need to investigate further variables for inclusion in the models to track the cut in private sectorial construction demand. This work is currently being undertaken at the University of Salford through the financial support of the Science and Engineering Research Council.

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