This plot is not showing good performance. Volume and jobs should be moving directly in tandem. When inflation is very high, spending climbs rapidly. But most of the climb is just due to inflation. To find out what’s really going on we need to look at business volume.
Business volume = Spending minus Inflation. Inflation adds nothing to business volume. Inflation adds only to the amount of revenue that changes hands.
In 2022, residential spending is up 16%. Sounds great, homebuilder’s revenues are up 16%. It’s great until you note that residential inflation for 2022 is 15%. Real residential business volume for 2022 increased only 1%.
Since Jan.2020 spending is up 20%. Revenues are up 20%. It’s pretty hard to not think you need additional staff to support 20% growth in revenues. But inflation is 30%. Take out the inflation dollars and we find that volume is DOWN 10%. Well, during that time, jobs increased 1-2%. And yet, business volume is down 10%. That’s a massive 11%-12% loss in productivity. With labor being about 35% of the total cost of a job, that’s added about 4% to total inflation.
I recently read an article that stated (attributed to Assoc. Bldrs. & Contractors) that the construction industry needs to add 1,000,000 jobs over the next two years. Here’s why that won’t happen. 1) The construction industry has never added more than 440,000 jobs in one year. It’s only gone over 400,000 four times in 50 years, and never two years in a row. 2) The average growth rate since 2011 is just under 200,000 jobs per year. 3) Since the Pandemic, nonresidential construction volume is down 20%, but nonresidential jobs are down only 1.5%. Compared to 2019, nonresidential construction has an 18% business volume deficit. In other words, Nonres construction in 2022 now has 18% more jobs per volume of work put-in-place than it did in 2019. 4) Inflation is playing a key roll here. In 2022, construction spending is increasing $160 billion or 10%. But inflation is 13%. Real construction business volume is down 3%. For 2023, spending is forecast to gain $80 billion, 4.6%, but after inflation volume will be down 1%.
Since Jan 2020, the construction industry as a whole has nearly +175,000 (+2%) more workers to put-in-place -$175 billion (-10%) LESS volume. That’s a huge loss to productivity that may take years to recover, if ever.
How we doin?
In the AIA Midyear Consensus, eight firms provided forecasts for Nonresidential Bldgs markets spending for 2022. Their forecasts for 2022 are summarized here. Construction Analytics midyear forecast is included for comparison. Who is closest, who’s not? The year-to-date (YTD) value is through September 2022. I’ll update after final spending for 2022 is posted in Feb. 2023, and then revised in July. The Sept YTD data was released Nov.1st. I’ve included my current (Nov) forecast for 2022 to the left of the table.
Construction is Booming. Well, OK, construction is setting up to be booming in 2023-2024. New construction starts for Sept are down 19% from August and yet starts are still near the highest levels ever. Sept is 4th highest total starts ever, all four of the highest ever months of new starts are in 2022. July and Aug were the two highest months of new starts ever. Total growth in starts over 2021-2022 – Nonres Bldgs +50% Nonbldg Infra +21% Residential +22%.
Construction Spending will not be participating in a 2023 recession. Except, residential might. Residential starts in 2021 were up +21% to a really high new high. But starts are forecast flat in 2022 and 2023. Spending grew 44% in the last 2yrs, but inflation was 30% of that 44%. With zero growth in starts forecast for 22-23, spending struggles to keep up with inflation. Residential will post only an increase of 3% in 2023 spending, but midyear there is potential for 6 consecutive down months.
SPENDING BY SECTOR CURRENT $ AND INFLATION ADJUSTED CONSTANT $
Nonres Bldgs new starts last 2yrs (2021-2022) are up 50%. Spending next 2yrs is forecast up 22%.
Nonbldg starts 2022-23 are forecast up 50%. Spending 2023-24 forecast up 20%.
Residential construction (Dodge) starts since Jan 2021 have posted 17 out of 21 months of the highest residential starts ever posted. The 5 highest months ever are all in 2022.
Nonresidential Bldgs starts in Sept dropped 23% from August and yet still that was the 3rd highest month ever. July and August were 2nd and 1st.
Construction starts for Nonresidential Bldgs posted each of the last 4 (consecutive) months thru October higher than any months ever before. The avg of last 4 (consecutive) months is 33% higher than the avg of the best previous 4 mo ever (even non-consecutive). Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150% year-to-date.
Construction Spending Sept total up 0.2% from Aug. Aug & Jul were revised up 1.1% & 1.3%. Total spending YTD thru Sept’22 is up 11.4% from Sept’21. MAJOR movers; Mnfg up 16% since Jun. Jul & Aug were revised up 7.4% & 8.4%. Highway is up 9% since June. Jul & Aug were revised up by 4.0% & 4.4%.
Total construction spending for 2022 is on track to increase +11.1%. Residential +16.8%, Nonres Bldgs +9.5%, Nonbldg +0.5%.
Comm/Rtl +18% Mnfg +32% Power -8% Pub Utilities +14%.
Current and predicted Inflation updated 11-16-22:
- 2020 Rsdn Inflation 4.6%, Nonres Bldgs 2.7%, Nonbldg Infra -0.3%
- 2021 Rsdn Inflation 13.3%, Nonres Bldgs 6.6%, Nonbldg Infra 7.8%
- 2022 Rsdn Inflation 14.9%, Nonres Bldgs 11.4%, Nonbldg Infra 12.0%
- 2023 Rsdn Inflation 5.9%, Nonres Bldgs 4.5%, Nonbldg Infra 3.8%
Inflation adjusted volume is spending minus inflation.
Total volume for 2022 falls 1%. Rsdn +3%, Nonres Bldgs -1%, Nonbldg -9%.
Total volume for 2023 is up 1%. Rsdn -3%, Nonres Bldgs +8%, Nonbldg +2%.
SPENDING TOTAL ALL $ CURRENT $ AND INFLATION ADJUSTED CONSTANT $
Overall Construction Spending is up 15% since the onset of the pandemic, but, after adjusting for 25% inflation, volume is down 10%. Residential jobs are near even on track with volume, but Nonres and Nonbldg have volume deficits of approx 20-25% vs jobs.
- Feb 2020 to Aug 2022
- Resdn spend +42%, vol +6.5%, jobs +7%
- Nonres Bldgs spend -8%, vol -24%, jobs -3%
- NonBldg spend -7.5%, vol -24%, jobs +1%
JOBS VS CONSTRUCTION VOLUME VS SPENDING (VOL = SPENDING MINUS INFLATION
Labor Shortage? Jobs should track volume, not spending growth. Vol = spending minus inflation. Volume is down while jobs are up. If the same production levels ($ put-in-place per worker) as 2019 were to be regained, theoretically, nonresidential volume would need to increase 20% with no increase in nonresidential jobs. I don’t expect that to occur, therefore, productivity will remain well below that of 2019.
Over the next year or two, there could be several billion$ of construction spending to repair hurricane damaged homes in Florida. That spending will NOT be reported in Census spending reports. Renovations to repair natural disaster damage are not recorded in construction spending. Construction spending to replace homes entirely lost to damage IS reported in Census spending, but is reported as renovations/repair, not new SF or MF construction.
RESIDENTIAL SPENDING SF-MF-RENO CURRENT $ AND CONSTANT $
Total construction starts for August did indeed fall (9%) as predicted from the lofty highs recorded in July. This is not alarming as you will see why.
Nonres Bldgs construction starts in July, $ as reported by Dodge, increased 75%+ from the previous month and 65%+ from the previous 3mo and 6mo avgs. That is a once in a decade increase. In 2018, starts posted an increase of 60%. The July and August 2022 starts is the only time starts exceeded that of 2018.
Historically, then starts would fall back to the 3mo or 6mo (normal) avg rate within the next two months. Never have starts increased the month after or even within the next several months after reaching such a high level. Until now. After posting a 75% increase in July, Nonres Bldgs starts for August increased 7%.
The total dollar value of Nonres Bldgs starts in July and August exceeded the total for all Nonres Bldgs starts in Jan+Feb+Mar+Apr.
Even assuming the next 4 months starts fall back to less than the avg rate before the extreme highs in July and August, Nonres Bldgs starts are on track to increase 20%+ for the year, an annual rate of growth achieved only once before, in 2014. With that assumption, for the next 4 months starts will fall 45% from the current high and still be enough to post the highest year ever. Don’t be alarmed if over the next 4 months Nonres Bldgs starts decline from the lofty highs in July and August. Those monthly highs seem unsustainable.
Non-bldg starts are on track to increase +14% total for 2022. Year-to-date non-bldg starts are up 21% with the largest increase in Utility/Gas plants. The entire decline in total starts for August was in non-bldg, but the August level, down 36% from July, is still the 2nd highest since Nov 2019 and in fact the 3rd highest ever.
What’s causing these huge gains? Along with moderate strength across many markets, mega-project starts in last 2 months. $25bil in 3 manufacturing plants, $15bil in 2 LNG projects (these are non-bldg) and $10bil for an airport terminal. Most of the spending from these projects, expected at the midpoint of construction, will occur after 2023.
Residential starts are on track to gain +2% in 2022. A 2% gain may not seem like much but is on top of a 23% gain in 2021 starts. The 1st six months of residential starts in 2022 is at an all-time high. Residential construction starts for JJA 3mo avg is down 10% from the peak in the previous 3mo. But that peak qtr, MAM, is up 5% from the total in 2021, which was up 22% from 2020. Residential starts fell a total of 14% over 3 consecutive months from the peak in Apr to Jul. Starts in August are up 1% from Jul. Avg starts for the last 20 months, in current $, are above the former high in 2005. But inflation adjusted constant$ would put recent starts 60% lower than the former 2005 highs.
Construction jobs through August 2022 increased to 1.1% above the pre-pandemic high in Q1’20. Factoring in hours worked, we find that is reduced slightly to show jobs x hours worked for August 2022 is 0.4% lower than the peak in Q1 2020. Most anyone would say jobs have returned to the pre-pandemic high.
Construction spending through July is 14.3% higher than the pre-pandemic high in Q1’20. BUT INFLATION through July is 23% higher than pre-pandemic Q1’20. Therefore real construction volume (spending minus inflation) is currently 7% BELOW the pre-pandemic high in Q1 2020.
Jobs are up, but volume is down.
So, when you read that jobs are back to pre-pandemic levels, maybe that’s not as great as you might think. Sure more people are back to work, but has the volume of work needed to support those jobs increased sufficiently?
Inflation hides a lot of reality. We now produce 7% less volume of work put-in-place with 1.1% more workers putting in 0.4% less hours than before. That’s a huge construction productivity loss, down 6.6% in the last 30 months. Where does that productivity loss show up in the data?
Here’s the plot of actual and forecast CONSTRUCTION SPENDING. Compare this to the next plot.
Here’s the plot of actual and forecast CONSTRUCTION SPENDING ADJUSTED FOR INLATION.
Notice, Residential volume is up 11% since Q1 2020, but nonresidential buildings volume is still down 23% and non-building volume is down 18%.
Let’s say construction labor is 35% of total construction cost. If wages go up by 5%, then total cost goes up by 5%x35% = 1.75%. Well, if productivity declines by 6.6%, labor cost goes UP by 6.6%x35% = 2.3%.
That’s the inflation cost. Here’s a look Behind the Headlines. These two plots show the number of jobs required to put-in-place $1 billion of volume (inflation adjusted spending) or the inverse, the amount of volume put-in-place by one job in one year.
It’s great that jobs are coming back, but don’t overlook the cost that has added to inflation. Don’t expect to see a lot of improvement over the next 12 months. In fact, if jobs continue to grow at the current rate (or any rate for that matter), this time next year the imbalance is worse.
Construction Spending data updated 8-16-22, actual Year-to-Date through June, Census issued 8-1-22.
Forecast based on starts through July. Residential starts peaked in Feb-May 2022. Residential starts in July are down 15% from the highs reached in the 1st five months of 2022. Nonresidential Bldgs annual rate of starts reached a remarkable new high in July, almost 50% higher than the average of the 1st six months of 2022, and 30% higher than the previous single-month high in 2018. Non-Building starts for July reached 125% higher than the average of the 1st six months of 2022, and 50% higher than the previous high in 2019.
Watch for future revisions in Manufacturing Starts data. Through July, Mnfg starts are up 180% over the same seven months in 2021. It won’t be up 180% at year end. This may not yet be fully reflected here. This will add to spending mostly in 2023 and 2024. Also watch Power/Utilities which posted a 60% gain in the 1st seven months over same period in 2021.
Keep in mind, only time will tell how much of those huge gains in Mnfg and Power starts are a real increase in the amount of new work started or how much of that gain reflects an increase in the share of the market captured in the starts survey. Over the past 10 years, Dodge total starts data captured amounts to only about 40% to 50% of the final spending amount for these two markets.
Construction Starts forecast updated to 8-16-22
Construction Backlog forecast 8-16-22
After a two-year slowdown in backlog growth in 2021 an 2022, growth resumes in 2023 and 2024. Nonresidential Buildings leads in 2023, Nonbuilding leads in 2024.
Watch for this temporary decline in spending over the next few months. Some lower months of residential starts over the past nine months reduces residential spending from May to Sept 2022 before it returns to growth. More moderate declines in Nonres Bldgs and Nonbuilding also contribute to the downturn. Declines generally turn into gains by Q4 2022.
Much of the gains in spending in 2022 and 2023 reflects the very large increases in inflation. Spending after inflation, or volume of work, shown below, declines for all nonresidential in 2022 and declines for Nonbuilding and residential in 2023.
Residential volume peaked in Q1 2022 but will not return to that level until 2025. Both Nonresidential Buildings and Nonbuilding Infrastructure volume peaked in Q1 2020. Neither returns to that level before 2026.
Volume of work (spending minus inflation, or Constant $) has been dropping for several months and will continue to drop for several more months. But jobs have been increasing. Over the long term these two data sets should move in tandem, not in opposition. As greater separation between these two occurs, with jobs over volume, the productivity factor for the amount of work put-in-place per job worsens. That is a hidden factor adding to inflation.
See the PPI post for details on 2022 PPI data.
This month the July update to the Final Demand indices reflects that this index barely moves for two months, then in the third month, when Census performs a contractor survey to update the index, it moves 80% to 90% of the index value for the three months. The same has been true looking back over all recent quarters. Takeaway: the Final Demand indices cannot be used monthly. Essentially, these should be considered a quarterly index. Here I’ve calculated Q2 and Q1xQ2. You can 4x or 2x those results to get an annual rate, but I suspect most of the increase is already in this year, so Q3 and Q4 I’d expect to be lower than Q1 and Q2.
I gave two conference presentations in the past month. The most pressing questions from the audience were:
Are we headed into a recession? When will recession start?
What can be done about the labor shortage?
How can we support all the infrastructure work that is about to begin?
There is no question the sizable drop in starts in 2020 lead to a downturn in construction spending, mostly felt in 2021, but extending somewhat into 2022. However, this quickly turned around for residential spending and nonres bldgs spending is now past the low point caused by the pandemic initiated slowdown. With new construction starts to date at all-time highs and the forecast for new construction starts in the pipeline, it’s hard to envision how this would lead to a construction recession.
- In 2021, new starts increased 17%. Residential +21%, Nonres Bldgs +15% and Nonbldg +9%.
- In 2022, new starts are forecast up 11%. Residential +10%, Nonres Bldgs +18% and Nonbldg +4%.
- In 2023, new starts are forecast up 10%. Residential +12%, Nonres Bldgs +7% and Nonbldg +11%.
Total of all starts year-to-date in 2022 are up 6% over Jan-May 2021. Nonres bldgs starts are up 17% year-to-date. For the past 6 months, Dec’21 to May’22, residential construction starts posted 5 of the 6 highest months ever. The 6mo total for residential starts is the highest 6mo total ever recorded, up 4% over the previous 6mo record, posted in 2021.
Residential new starts get spent at a ratio of 70:30. Nonresidential Bldgs spending from new starts, on average, gets spent over the next 3 years in the ratio of 20:50:30. That is, 20% of spending from all starts within the year gets spent within the year started, 50% gets spent in the following year and 30% gets spent in the 3rd and sometimes 4th year. So from this we can say, if new starts are up 10% for the year then spending from that source will increase 10% x 20% or 2% the 1st year, 10% x 50%, 5% the 2nd year and 10% x 30%, 3% the 3rd year. If we get 3 consecutive years of growth in new starts there would be no downward pressure on spending for the next 3 to 4 years.
In the 2nd half of 2021, residential starts, although still strong, posted a few lower monthly totals. Although 2022 spending will still finish the year up, these lower monthly starts from late 2021 will work to cause a slight spending dip in the 2nd half of 2022. Nonresidential Bldgs spending is slowly increasing in 2nd half 2022. Nonbldg spending is flat or very slowly decreasing. The net effect is spending will post a decline in 4 of the next 8 months of 2022, but the total declines may not result in 2 consecutive quarters of declines. By the time we head into 2023, all three major construction sectors are in a growth pattern.
So, we will see a few months of spending declines, but the new starts pool of work is growing, not decreasing. The current forecast model is predicting no recession on the horizon.
This next plot shows labor and volume of work (spending minus inflation) to support that labor growing equally, albeit with short-term peaks and troughs, from 2011 to 2018. In fact, this equal growth extends far back with only few years causing exception to this pattern. This plot, and the extension of this plot to older data, shows that normally, labor increases at the same rate as volume. You can see that 2018 posted a significant drop in volume while jobs continued to increase. This departure had nearly corrected itself by Jan 2020.
The most recent construction spending report, issued July 1, revised unadjusted spending data for 2020 and 2021, both years added $30+bil. That brought volume up those years on this plot. The current spread between jobs and volume of work is still 10%.
In May of 2020, jobs were already on the rebound, but the volume of work was not. Work volume did recover some at the end of 2020 but then fell again, as was predicted, into mid-2021. In May of 2020, jobs and the volume of work were near balance. Since May of 2020, spending increased by 22%, but most of that was inflation. Since May 2020, actual work volume increased by only 1.5%. Jobs increased by 9%.
The last time the normal jobs/volume growth pattern was disrupted like this was 2006, the only other time in the last 25 years this occurred.
Volume, not spending, supports jobs. If volume is down, support for more jobs drops. If jobs increase while volume is declining then productivity is declining and the number of jobs required to put-in-place $1 billion of construction volume increases. At the same time, the inverse, the amount of volume put-in-place per job, decreases. This productivity loss drives up construction labor cost inflation and the need for additional labor to complete the job.
edited/added 8-6-22 Where the construction jobs are:
From Feb 2020 to Jul 2022 Nonres Bldgs and Nonbldg jobs are down 3.5% and 1.5%. Volume of work is down 20%.
Residential jobs are up 6.5%. Rsdn volume is up 14%.
It’s not quite that bad in either sector because some workers classified and counted as nonresidential perform work in the residential sector.
Total jobs up 1%. Total volume down 7%. That’s a slip of 8% in productivity. If labor is only 30% of total construction cost, an 8% slip in productivity is a 2.4% increase in inflation. That’s in addition to changes in wages.
The current administration has approved an infrastructure spending bill that earmarks approximately $500 billion for construction spending. It will take several years to start all this work.
The infrastructure spending bill may fund construction for a variety of buildings and non-building types of construction, for example, highway, water and sewer, educational, healthcare, etc. Rather than strictly classified as infrastructure, or as commonly referred to as nonbuilding construction, this bill will fund some forms of buildings and non-building construction in the public construction sector.
The total of all public construction is only 25% of all construction. This subset of construction totals about $360 billion in annual construction spending. It has never increased by more than $37 billion in spending ($35 billion in volume) in a year. Average growth is closer to $10-$15 billion/year. This public sector of construction does not have the capacity to increase by $100 billion/year.
As you can see in the plot above, it takes about 5000 jobs to support $1 billion of volume for 1 year. So, increasing volume by $35 billion in one year would require 35 x 5000 = 175,000 new jobs for that year. Keep in mind, this is to support a subset of construction that is only 25% of all construction.
Jobs have never increased by more than 400,000 in one year for all construction. Even taking out the 13 years when jobs dropped, the average jobs growth for the past 50 years is only 220,000/year for all construction. That would seem to indicate the average growth for the public sector, at 25% of all construction, averages only 55,000 jobs/year.
Total all construction for the three years 2022-2023-2024 is forecast to increase $140 billion, $117 billion and $116 billion. The remaining 75% of the construction industry still adds a lot of demand for growth and jobs beyond just that of the public sector that gets a boost from the infrastructure bill. But after adjusting for inflation, the growth in volume over this three-year period is only about $120 billion. That would generate a need to create 600,000 new jobs over the next three years. About 25% of those jobs support the infrastructure funded growth.
If the infrastructure spending bill adds $35-$40 billion/year in spending, $30-$35 billion/year in volume, the need would be 150,000 to 175,000 jobs/year to support that 25% of the construction industry. Since it is unlikely the public sector of construction could add that many jobs, it is more likely the amount of construction spending added yearly will be somewhat lower.
Infrastructure has a slower spending curve than the 20:50:30 for nonres bldgs, roughly more like 15:40:30:15. If $100 bil of new contract awards start in 2022 then spending would be $15 bil in 2022, $40 bil in 2023, etc.. At $100 bil of new starts per year, the highest one-year growth would be $40 bil, probably double the pace the sector can grow.
Construction Spending is up +12% year-to-date for the 1st three months of 2022, again mostly driven by residential which is up 18.6% ytd. Total spending is up 11.7% year over year (Mar’22 vs Mar’21).
See end of post for downloadable pdf.
Total construction spending for the 1st quarter 2022 vs the 4th quarter 2021 is up +6.5%. I expect this rate of spending growth to flatten over the next six months.
Residential is about half of all construction spending. For the past 6 months, residential construction starts ($ by Dodge) posted the highest 6mo total ever recorded. Dec, Jan and Mar are all near Feb, the highest monthly total on record. This implies no slowdown in residential spending at least for the next 6 months although I expect by year end, residential (annual rate of) spending will be down about 2-3%.
Spending up year-to-date: Manufacturing up 34%, Commercial/Retail up 18% and Highway up 9%.
Spending down year-to-date: Public Safety (80% of Other) -31%, Lodging -27%.
Now 2 yrs since the onset of the pandemic, total construction spending in March 2022 is up 15%. Residential spending is 42% higher than March 2020, Nonresidential Bldgs is down 5%, Nonbuilding Infrastructure is down 6%.
Why is spending coming in well above any forecast prepared at the beginning of the year? Since October, new starts have come in much stronger than predicted, 8% higher than the previous high 6mo period which immediately preceded. But some markets increased way above average, residential and manufacturing. This most recent 6 month period for nonresidential buildings includes two months in which starts came in 30% higher than average. You can’t predict that. Residential construction starts posted the highest 6 month total ever recorded and Q1 2022 is the highest quarter ever. Not only are starts stronger than expected, but also the very high rates of inflation are inflating the spending data. Original forecasts for spending did not anticipate all types of work would experience such high inflation.
Construction buildings cost inflation over the last 4 years is up 21%. Labor cost is two parts, wages up 15% & productivity down 7%, for a net cost up 22%.
Labor is 35% of total building cost so 35% of cost that is up 22% = labor is 8% of that total 21% building cost inflation. Therefore, 8% out of 21% or fully 1/3 of construction inflation over last 4 years went into workers pockets.
Take out inflation and we get construction volume. In 2 yrs since the onset of the pandemic total construction volume (spending minus inflation) is down 2.5%. Residential construction volume is up 15%. Nonresidential Bldgs volume is down 16% Nonbuilding Infrastructure volume is down 15%.
Volume, not spending, supports jobs. If volume is down, support for jobs drops. If jobs increase while volume declines, then productivity drops and labor cost inflation increases.
Since Feb 2020, the last 2 years
Volume: Residential is up 10%; Nonres Bldgs down 17%; Nonbldg Infra down 15%.
Jobs: Rsdn up 5.75% (+171k), Nonres Bldgs down 4.5%(-159k), Nonbldg down 2.3% (-30k).
In 2021, jobs increased +2.3%. Volume was down -1.1%.
Post-pandemic recovery volume of construction may have temporarily peaked in the 1st quarter 2022 at 3.3% below Feb 2020. Over the next few months, spending mostly holds level, but inflation eats away at growth and volume declines by year end. This should hold jobs down.
In January, I wrote Construction Forecast 2022 – Jan22 a full length post and article on the Outlook for 2022. Below I’ve updated the complete article to include all data up to May 6, 2022
Construction Jobs report for Mar 2022 shows total jobs up 19,000 from Feb
Rsdn jobs +7,600, Nonres Bldgs +6,300, Civil +5,000
Although construction jobs increased by 19,000 in March, total hours worked dropped by 1.8% from Feb, so total workforce output is down.
It’s real hard to compare construction jobs growth by sector. If you work for a concrete firm or structural steel firm, with firm doing primarily nonresidential work, but you are out there putting in concrete or steel for a high-rise multifamily buildings, your job is still classified as nonresidential.
Jobs are up 82,000 year-to-date, 1.1% from Dec, but that’s also up 3.5% from ytd 2021. With the latest quarter at +1.1%, jobs are increasing at a rate of 4%/year. But inflation adjusted spending, building activity, is expected up only 2.5% in 2022, after dropping -2% in 2021. Jobs increased 2.5% in 2021.
2022 spending started the year at the highpoint. I expect a slow decline in monthly spending in all sectors of 2% over the 2nd half. That provides no support for jobs growth.
Construction jobs have nearly returned to pre-pandemic levels. The problem with construction jobs having returned to pre-pandemic levels is the level of inflation adjusted construction volume of activity that is needed to support those jobs is still 5% below Feb 2020 and 13% below the 2006 peak. So since Feb 2020, jobs are back to that level, but volume is not so productivity has dropped by 5%.
Construction Spending is up +10.4% year-to-date (in 2 months!) mostly driven by +15.5% ytd Residential.
A plot of residential construction spending inflation adjusted. Taking out inflation shows volume of building activity. Perhaps the trend in residential is strong enough to keep going.
Total spending is up +4% in 3mo since Nov 2021 (and 10% ytd-2mo), but I don’t expect this rate of growth to hold. However, this and any other changed data inputs revises my 2022 spending forecast.
Examples of big changes since initial forecast:
Manufacturing spending has increased so much in Jan-Feb, (up 35% ytd) that even if the next 10 months finish flat year/year, Mnfg will still finish up 5% for 2022.
Residential new starts for the latest 3 mo, Dec-Jan-Feb, avg is as high as any quarter last year. Nearly all of this spending occurs in 2022.
Construction buildings cost inflation over the last 4 years is up 25%. Labor cost, wages up 15% & productivity down 7%, is up 22%. But labor is 35% of total building cost so 22% x 35% = labor is 8% of that total 25% building cost inflation. Fully 1/3 of construction inflation over last 4 years went into workers pockets.