Measuring Construction Inconsistently
The NACE Subdivision 41.1 Distorts the Data
This post looks at the presentation of construction industry statistics reported by national and international statistical agencies. There is an International Standard Industrial Classification, but Europe, North America and Australasia have their own versions of the international standard. This raises the question of what the similarities and differences between their different versions of construction might be, and whether these differences are important.
While there are national variants on the ISIC format there is also a great deal of commonality. Economic activities are subdivided in a four-level structure with the category at the highest level called sections, which are alphabetically coded. These sections subdivide productive activities into broad groupings such as “Agriculture, forestry and fishing” (A), “Manufacturing” (C) and “Information and communication” (J). The classification is then organized into numerically coded categories, which are two-digit divisions, three-digit groups, and, four-digit classes (which have the greatest level of detail). Section F in the ISIC includes the complete construction of buildings (division 41), the complete construction of civil engineering works (division 42), and specialized construction activities or special trades, if carried out only as a part of the construction process (division 43). Also included is the repair of buildings and engineering works.
The table below compares the ISIC with the Australian New Zealand Standard Industrial Classification (ANZSIC), the North American Industry Classification System (NAICS) used by the US and Statistics Canada, and the NACE system used in the European Union (EU, the acronym is from the French title). The United Kingdom’s Standard Industrial Classification of Economic Activities is the same as the NACE.
There is an important point of difference at the higher two-digit level of divisions. While there are exceptions to the ISIC format, with every country subtly unique yet broadly similar, NACE and the UK SIC has one specific inclusion that makes it different to ISIC. The SIC group 41.1 Development of building projects (and its class 41.10 of the same name) is part of the construction industry. Neither ISIC nor the other two systems compared here have this subdivision.
The development of building projects are not given their own subdivision by ANZSIC or the NAICS, therefore this activity is not being accounted for in same way as it is in the UK and the European Union (EU). This affects international comparisons of construction output, share of GDP and growth rates. Even within the EU the contribution to the construction industry from the 41.1 category varies widely. Across the EU the reported activity statistics compiled by Eurostat for the Development of building projects category vary from 20 per cent in Cypress to nothing in Sweden. The figure below shows the share of 41.1 in total construction value added in 2015 and the average of that share for the eight years to 2015.
Source: Eurostat, 2017.
The inclusion of the subdivision 41.1 in NACE distorts the data on the European construction industry. It is unevenly and unreliably reported across the 28 countries, but for a few countries it is a significant share of construction output. The NACE inclusion of Development of Building Projects in construction should be taken into account when making international comparisons, as the contribution of this subdivision 41.1 to industry output significantly increases the industry total in a few countries across the EU, but is either not reported or not included by counties using the ISIC, ANZSIC and NAICS systems.