De-constructing construction

Maybe it ends up being more of a commentary on what passes for data in the science of economics than anything else, but we think it's worth saying something about the role of the construction sector in the only recently easing misery that are Spanish GDP statistics.

On the left, Javier's chart compares the gross value added of the construction component of Spain's GDP, compiled by the Instituto Nacional de Estadística, with the four construction sector indicators published by the Ministerio de Fomento. The two versions hardly confirm one another.

A request to the latter for an explanation of the difference came up with this response:

The INE GVA statistics are the result of a synthetic indicator that incorporates building permissions, new mortgages, home sales, tax data and employment statistics, among others.

Those from Fomento are simply the results from monthly surveys sent out to larger corporations in the construction sector. 

The obvious comment to make here is that if the INE is drawing conclusions from tax and employment data in the small firm dominated residential construction industry, well... they're doing it wrong. Believe us, the last guy to find out if the situation is improving is the government. Beyond that, we also have our doubts about the use of 'new permissions' at a moment in time in which there's a huge overhang of uncompleted, or never started, projects. But we'll leave that until we can say something more concrete about it.

Firm size, by the way, is also the main problem with Fomento's survey. It misses a large part of residential activity and there's no way of knowing if output is representative of the industry as a whole.

The chart on the left shows Spanish GDP both with and without construction activity. This has never really not been a construction story, the result of building two decades supply of homes in 6 or 7 years. But the relative slowness with which the national accounts proxy reacts to what is an evident firm-level improvement may currently be overstating the negative case.




Ibex Salad 2 is written by Charles Butler and Javier García Echegaray. The links lead to their Twitter accounts.