Construction Spending June 2018


U. S. Census posted Construction Spending for June at a seasonally adjusted annual rate (SAAR) of $1,317 billion, down 1.1% from an upwardly revised May.  Year-to-date, June spending is up 5.1% from 2017.

May was revised UP 1.7% from the 1st release posted 7-2-18. April was revised UP 0.8%.

Construction Spending for the 1st half 2018, in Current $, averages $1,307 billion. This is an all-time high, well above the pre-recession high spending of $1,205 billion posted in the 1st quarter of 2006. Spending has been above the 2006 high since the 4th quarter 2016. Spending total is expected to average $1,330 billion for 2018.

Constant $ shows volume reached peak during the 2nd half 2005 and 1st half 2006, with  2005 posting the peak year. 2018 constant $ inflation adjusted spending is still 14% below the 2005-2006 peak.

Spend current vs constant 2018 8-2-18

Total spending year to date through June is $620 billion. Historically, only 47% of annual spending occurs in the 1st 6 months. Jan, Feb and Mar are the weakest months of the year, while Jul, Aug and Sep are the strongest spending months. Therefore, this indicates a 2018 total annual spending of $1,328 billion. This agrees very close to my total 2018 spending forecast.

The headline from the St Louis Fed > Total construction spending fell 1.1% in June, the largest monthly drop in more than a year. Just remember, spending subsequently gets revised 3x and final vs 1st release has been revised UP 79 times in the last 84 months.

Top performing construction spending markets 2018 year-to-date through June are Transportation +14.3%, Public Safety +12.1%, Lodging +10.7%,  Water Supply +9.7%, Sewage and Waste Disposal +9.2%, Residential +8.1% and Office 6.8%.

The only markets down year-to-date are Religious -9.1%, Manufacturing -8.7% and Power -0.4%. Religious building as a percent of total is so small (1/4 of 1%) it has negligible effect on total annual performance. However, Manufacturing and Power make up about 15% of total construction.

Residential, Office, Commercial/Retail, Lodging, Highway and Environmental Public Works (Sewage, Water, Conservation) are all ahead of expectations for the 1st half of 2018.

June construction spending data shows an unusual $9 billion (SAAR) monthly decline (-9.3%) in Educational spending. This is several billion greater than the largest decline reported during the recession, so this looks like an anomaly in the data. There has never been a monthly decline like this in the Educational market since I’ve been tracking data, back to 2001. It is double the largest non-recession decline. I expect it will be revised up substantially at some point in the future.

Transportation is another market that appears to be unusually low for June. Because the monthly variance is not wildly out of balance it passes in obscurity. But here’s what we should see. Transportation (terminals and rail) new starts in 2016 increased 34% and then in 2017 increased 120%. Most of those projects will be completed in 3 years or less, but a number of the huge projects (no less than 15 projects ranging from $1 billion to $4 billion each) have a duration of 4 to 8 years. Even with long duration cash flow spreading out the spending for all those big projects, my analysis still predicts Transportation spending up 30% in 2018. Year-to-date through June, Transportation spending is up only 14%. I’ve forecast it should be up 18%. That’s a total shortfall of about $1 billion (SAAR ~$12 billion), or about 7%/month, for 3 months. April, May and June spending are all below expectations. I expect future revisions will increase current values. Also, we will see a big jump in year-to-date over the next three months since we are currently at an SAAR above $50 billion (and increasing) and Jul-Aug-Sep were the three lowest months in 2017, below $43 billion. Also, 2017 values were revised up 4%/month after the close of the year.

Manufacturing spending as of June is reported down 8.7% year-to-date from 2017.  That decline will slowly turn positive in the second half of the year to finish up 2%. Spending is currently at an SAAR above $65 billion and expected to increase through December. In 2017, spending started the year above $70 billion but decreased to $60 billion by year end. Increasing values in the 2nd half 2018 compared to decreasing values in 2017 will continually increase the year-to-date performance in the 2nd half of 2018.

Power, similar to manufacturing, posted the highest spending for 2017 early in the year, then declined. In 2018, the 1st half posted the lowest spending, so the year-to-date is currently low. Increased spending in the 2nd half 2018, compared to the lowest values of the year in 2017, will boost year-to-date spending every month through year end. Although year-to-date spending through June is down 0.4%, the total for the year could finish up 9%.

Manufacturing and Power highlight one of the biggest shortfalls of judging expected performance based on year-to-date change. It is important to look at the trend line expected in the current year versus the trend line in the previous year. If they diverge, then year-to-date change will not give a clear indication of expected performance in the current year.

Total spending has increased from an average of $1,254 billion in Q4’17 to $1,292 billion in Q1’18 to $1,321 billion in Q2’18, growth of 3.0% and 2.25% the last two quarters. I’m expecting the rate of monthly spending will be above $1,360 billion by year end. The total spending forecast for 2018 is $1,330 billion.

Residential single family spending is up 9% YTD. Multifamily is down ~1%. Total residential spending is forecast to reach $566 billion in 2018, growth of 6.4% over 2017.

Nonresidential Buildings spending YTD totals $207 billion, up only 1.9% from 2017. It is being held down by Manufacturing which is currently down 8.7% from 2017. Also, the anomaly in Educational spending, explained above, contributes to the current low performance. 2018 forecast is $445 billion, 6.2% growth over 2017, with best growth in Lodging 13%, Office 11% and Amusement/Recreation 9%.

Non-building Infrastructure will post the best year of growth since 2014 to reach a new all-time high at $319 billion. Transportation, by far, will show the best growth, nearly 30% above 2017.

Spend Sector 2015-2019 8-9-18


June Construction Starts Reach New Highs 7-25-18



June Construction Starts Reach New Highs


New construction starts, posted today by Dodge Data & Analytics, measured in current dollars, came in at a seasonally adjusted annual rate of $896,000 million, up 11% from May. May, originally posted at +15% over April, was revised up 3.5%.

2nd qtr increased 7.5% from 1st qtr., and 1st half increased 4.5% from the previous 6 months.

The June SAAR (seasonally adjusted) amount of $896,000 million is the highest on record. However, in constant $, adjusted for inflation, there were a few months from 2004 through 2006 that would still be slightly higher. After revisions, it will likely be higher.

Year-to-date starts through June total $396,000 million, 1% higher than the same six months of 2017, but that amount is not as low as first comparison would indicate. 2017 starts through June have already been revised up by 14%, up about 20% in nonresidential and 5% in residential. 2018 starts will be revised again next year and revisions have always been up. Revisions in previous years have averaged more than +7%/yr. for the last 5 years, with most of the upward revision in nonresidential. Therefore, the potential that 2018 YTD gains at a later date will increase vs 2017 is expected.

2017 starts final, once all revisions are posted, could reach close to $800 billion.

New starts data is a sampling of project starts, representing about 60% of total work volume. Actual starts dollars cannot be used directly to represent spending. However, tracking the rate of change in predicted cash flow from starts allows to predict the rate of change in spending.

From Sept’17 through Jun’18 new construction starts reached the highest monthly average since 2004 and are now just below the all-time high.

Residential starts average for the 6 months Jan-Jun 2018 is the highest since 2006. The 1st 6 months of 2018 is up 10% from the prior 6 months.

Non-building infrastructure starts for June are down 28% from May, but that is not particularly newsworthy, because May had an unusually high amount of starts. May included almost $8 billion of pipeline, rail and sewerage projects starts, 3x normal, while June settled back to normal.  June Infrastructure starts are still higher than the average of the previous 6 months. The average Infrastructure starts for Apr-May-Jun is the highest since Q1 2015 when massive new starts for energy plants drove Infrastructure starts to all-time highs. Starts may finish the year close to the same as 2017, but, if slightly higher, could still be the best year of starts on record. The growth in Infrastructure starts will drive Non-building spending to record highs in 2018 through 2020.

Starts 2008-2018 nonbldg 7-26-18

Nonresidential buildings starts in June reached $402 billion, nudging up against the all-time constant $ high from 2008. In fact, in un-adjusted dollars current $, June 2018 starts reached a new high. Manufacturing starts are double the amount from same period in 2017 and Amusement/Recreation starts are triple last year. The only nonresidential market that is lower year-to-date is retail stores. Adjusted for inflation, Jan 2008, by a few percent, is still the best ever for nonresidential buildings starts and spending.

Starts 2011-2018 nonres bldgs 7-25-18

The plot above shows 3mo moving average and trend line for Nonresidential Buildings Starts. Starts can be erratic from month to month. The trend line gives a better impression of how starts will impact spending.

The plot below is an index. The plot shows accuracy when the predicted cash flow and actual spending plot lines move in the same direction.

The light green line, spending estimated from starts cash flow, shows smooth spending, even though actual monthly starts are erratic (see nonres bldgs plot shown above). The actual spending often follows pretty close to the pattern as that estimated from cash flows.

Starts CF 2015-2018 7-25-18

It’s notable that new construction starts through June are up 1% from 2017. When the 2018 forecast was first issued last November, 2017 starts were predicted to finish the year at $742 billion. The original forecast for 2018 starts growth predicted starts would increase 3% over 2017 to a 2018 total of $765 billion. Well, the current total for 2017 is now $780 billion. Since November, the 2017 base has been revised up by  almost $40 billion. 2017 starts could finish close to $800 billion, more than double the original forecast % growth. And yet, the YTD total for 2018 is still 1% above that revised value.

Starts in both 2017 and 2018 are stronger than expected just 6 months ago. The current SAAR monthly $ of starts is 10% higher than anticipated just 6 months ago.

Construction spending is up year-to-date through May in every sector. Only Manufacturing and Power markets are down YTD, but not enough to drag the sectors negative. Both markets are expected to finish the year up. (Religious market is down, but represents only 0.2% of spending).

Cash flow from all starts still in backlog supports a 2018 spending forecast of $1,330 billion, a spending increase of 6.6% over 2017.

Construction JOLTS – What’s wrong with this picture?


In the 24 months from May 2016 to May 2018, Construction Volume went up 3.0%. Jobs went UP by 8%, 500,000 jobs. Spending in that 24 month span increased by just over 12%, but inflation for that period across all construction averaged 9%, hence real volume increased only 3%. That’s a $35 billion increase in volume, enough new work to support 175,000 to 210,000 new construction jobs.

JOLTS (Job Openings and Labor Turnover Survey) job openings went up from 2.4% to 3.0%, up 50,000 openings. Jobs growth exceeded volume growth by more than double and yet job openings went up!

Not only did jobs growth of near 8% far exceed that needed to support the growth in new work, but also, because jobs growth was so strong, it should have reduced job openings.

What’s wrong with this picture?

Jobs vs Volume 2011-JUN2018 7-6-18

Pretty obvious the numbers just don’t add up. First, since construction spending is always later revised up, in recent years by 2%, let’s be generous and assume spending will get revised up by 2%, and let’s keep inflation the same. That would result in a 5% increase in volume or closer to $60 billion in volume. That would support 300,000 to 360,000 new jobs, a need still well below the actual growth in jobs of 500,000.

No matter how we look at it, even generously supposing spending will later increase by 2%, jobs have increased greater than volume of work.

Companies predict job openings based on positions they need to fill within 30 days. But, what if their judgement of positions they need to fill is determined based on what they anticipate from increases in revenue, without taking inflation into consideration. Since revenue also includes inflation, which adds nothing to business volume, that would overestimate the need for new jobs.  We’ve seen this before, in the last expansion.

2003-2006 construction spending increased by 35%, the most rapid increase in spending in over 30 years. But construction inflation during that four year period totaled over 30%, the most for four consecutive years dating back to 1978-1981. After adjusting for inflation real volume in 2003-2006 was up by less than 5%. Considering how high spending was and how much it felt like growth, there was surprisingly little. That did not hold back jobs expansion.

Construction firms added 15% to jobs, or 1,000,000 jobs during this period, more than 3x the actual need.  Job Openings in the JOLTS report increased 100%+, from 100,000 to over 200,000. Firms hired far more than needed and kept increasing the report of job openings, even though they had already hired far more than required. In 2006, housing starts dropped 15%, residential spending dropped 25%, but residential jobs still increased by 6%. From 2003 to 2006, spending on nonresidential buildings increased by 20%, all of it inflation. Volume remained stagnant these four years, however jobs increased by 10%.

Clearly the increases in jobs during this period correlate more with spending than real inflation adjusted volume growth. This four-year period registered the largest productivity decline in over 30 years because the rate of jobs growth was much faster than volume growth.

For 2018-2019-2020, construction spending is currently forecast to increase 6.7%, 3.0% and 4.2%. But after adjusting for inflation, real construction volume is predicted to increase only in 2018 by about 2%. For 2019-2020 volume declines or remains flat.

An argument could be made that JOLTS openings is dependent on firms outlook for growth in the near future. For that, let’s look at predicted volume growth in 2nd half 2018 and in 1st half 2019. It is predicted spending will increase 1.5% in the 2nd half vs 1st half 2018. But adjusted for inflation, volume will decline by 1%. Likewise, for the 1st half 2019, although spending will increase, inflation will outpace spending and real volume will decline 1%. There is nothing in past data or forecast that would support an increase in forecast job openings.

See also What Jobs Shortage? 7-6-18 for related info.

Could it be that some firms are anticipating job needs based on spending, not on volume? Could it be that these firms are not adjusting revenues for inflation to get volume before using the data to prepare a business plan? This is not entirely anecdotal. In several presentations I’ve given over the years I’ve asked the audience, How many of you plan your business needs on your revenue? In a show of hands at a  presentation to NHAGC, a large portion of the audience raised their hand.

If your construction company revenues are up 6% in a year when inflation is 5%, then your net volume is up only 1%. Your company jobs growth required is only 1%.

You cannot ignore the impact of inflation when forecasting jobs need.

What Jobs Shortage?


Jobs report for June issued this morning. Construction Jobs are up slightly.  But the real story is in the last year of growth. Jobs are up 282,000 since June 2017. All across the industry, pundits are screaming jobs shortage. But is there one?

The current spending growth has 2018 on a path to reach an increase of near 8% in spending. But that is not volume. Most of that is INFLATION and that ADDS NO VOLUME. Inflation in 2018 is predicted (already in the spending numbers) to come in about 5% to 6%. Volume is spending minus inflation. Volume in 2018 forecast 2%-3%. Jobs are up 4% since June 2017.

Jobs growth of 4% when net volume is increasing only 2%-3% shows jobs growth in excess of volume. In 2017, jobs increased 3.4% against spending growth of 4.5%. But ALL of the spending growth was inflation, so net volume was 0%. So jobs growth has outpaced volume growth for the last two years by 5%.

See also Construction JOLTS – What’s wrong with this picture? 7-10-18 for related info.

This plot sets the plot lines to zero starting at Jan 1, 2011 so the growth from the bottom of the recession can be visualized. We started Jan 2011 with an excess of jobs.

Jobs vs Volume 2011-JUN2018 7-6-18.JPG

The plot below shows from Jan 2005 through Dec 2010, volume had dropped 15% more than jobs. So we started the recovery in 2011 with excess jobs compared to 2005.

Jobs vs Volume 2001-2010 8-8-17


When we look into the three major sectors, the numbers show shortages in residential and job excesses in nonresidential building and nonresidential infrastructure.

You can read much more detail on this in several other articles I’ve written. See this link Construction Jobs 3-8-18  for an article that includes all links to previous articles on the Jobs/Workload imbalance, has an explanation of how some residential jobs are counted in nonresidential and shows the volume/jobs plots for residential and nonresidential.

Residential construction jobs currently total 2,817,000. That’s 83% of the peak jobs year, 2006, which averaged 3,405,000 jobs. Volume of residential work, after adjusting spending for inflation, peaked in Q1 2006 at $780 billion. Volume in the 1st five months of 2018 averaged only $540 billion, only 69% of peak volume. Since the peak in 2006, residential jobs are at 83% of peak, but volume is only at 69% of peak. If we look only at growth since the bottom in Q1 2011, residential jobs have not kept up with volume growth. However, jobs have increase far more than volume compared to the previous peak.

Nonresidential building construction jobs currently total 3,388,000. That’s 99.7% of the peak jobs year, 2007, which averaged 3,397,000 jobs. Volume of nonresidential buildings work, after adjusting spending for inflation, peaked around Q42007-Q12008 at $530 billion. Volume in the 1st five months of 2018 averaged only $420 billion, only 79% of peak volume. Since the peak, non residential buildings jobs have returned to previous levels, but volume is only at 79% of peak. Nonresidential buildings jobs, whether we look at just from the 2011 bottom or we compare since the 2007-2008 peak have increased far more than volume.

The following link shows the jobs vs volume plots for residential and nonresidential.

Much more on this topic Construction Jobs

Construction Spending 2016-2017 Revisions 7-1-18

While everyone else is talking about May construction spending versus April, the most important change taking place in the spending report every July 1st is the fact that, every year, with the release of May construction spending data on July 1, Census revises the data for all months going back the previous two years. Rarely have revisions been lower.

Census Construction Spending July 1, 2018 data revisions:

2017 increased by $12bil, +1.0%. Most notable was a +2.5% increase to unusually low April 2017.  2017 revisions were mostly residential, up $7.5bil, +1.5%

2016 also revised up, by $6bil, +0.5%, mostly in Nonresidential Bldgs.

Nonresidential Bldgs were revised up in both 2016 & 2017. Healthcare up by ~4%/yr both years. Power revised down by ~4% both years.

Jan, Feb & Apr 2018 spending were reduced, Mar was revised up. Jan-Apr 2018 total was reduced by $2.6bil, -0.7%. Biggest move was -5% to Nonresidential Bldgs. Commercial -15%, Mnfg -5%, Office -4%, Public Safety -18%, Communication +6%

Primary reason YTD dropped from 7.6% last month to 4.3% this month is because $6bil was added to JFMA 2017. Happens every year with this Revs issue.

More to come.

Spend Summary 2014-2020 May 2018 7-3-18


Starts CF 2015-2018 7-3-18.JPG


New Construction Starts May 2018 Near All-Time High


Dodge reported May new construction starts at a seasonally adjusted annual rate of $778,000 million, up 15% from April. Also, year-to-date starts total $294,000 million, 3% lower than the same 5 months of 2017.

However, 2018 numbers will not be revised until next year and 2017 numbers through May have already been revised up 13%, up about 18% in nonresidential and 6% in residential. So the potential that YTD numbers remain 3% below 2017 is very small.  Revisions to previous year’s numbers have averaged more than +7% for the last 5 years with most of the upward revision in nonresidential.

Revisions to 2017 year-to-date have already resulted in a 4% increase in both 2018 and 2019 starting backlog.

Although Dodge, in its midyear report, is predicting 2017 starts at a total of $763,000 million, the current rate of revision seems to indicate 2017 starts could reach closer to $800,000 million. Forecast 2018 total starts will increase only slightly over 2017.

Keep in mind, unlike the Census spending data which captures 100% of all spending, the new starts data is a sampling of project starts, representing about 60% of total work volume. For this reason, the actual starts dollars cannot be used directly to represent spending. However, the change in predicted cash flow from starts can be used to predict the change in spending.

From Sept’17 through May’18 new construction starts reached the highest average since 2004 and are just below an all-time high. Residential starts posted the best 6 months average since 2006, up 8% from the prior 6 months. Both nonresidential buildings and non-building infrastructure are lower than recent highs. Both could finish the year with starts at a decline of 4% to 5% below 2017 totals, but they are both still near the best year of starts on record.

Starts totals near new highs is in current $. If  2004$ were represented in constant 2018$, the total would be 40% higher due to inflation. So, after adjusting for inflation, today we are still 40% below that 2004 high point.

  • TOTAL All Construction Starting Backlog for 2018 reached an all-time high, increased 35% in the last three years, 14% in the last year.
  • Nonresidential Buildings 2018 starting backlog is the highest ever, up 50% in four years, up 17% from 2017.
  • Non-building Infrastructure 2018 starting backlog is the highest ever, up 45% in three years, up 16% from 2017.
  • Residential work within the year comes mostly from new starts within the year, only 30% from starting backlog.

The erratic nature of new construction starts belies how smoothly those projects feed into backlog and monthly spending.

Starts 2011-2018 nonbldg 6-23-18 Starts 2011-2018 nonres bldgs 6-23-18

Backlog shows fairly constant growth for the last 5 or 6 years. Spending in any given month includes projects started and entered into backlog from 1 month ago to 3 or 4 years ago. In some non-building cases, projects are in backlog for 6 to 8 years, so project starts that appear as a high spike enter backlog and spending and produce a constant upward slope. Most spending within the year in nonresidential work comes from backlog. Most spending in residential work comes from new starts.

Backlog incld Res Starts 2005-2019 6-23-18

The cash flow model of all previous jobs underway already in backlog and all new starts shows the current predicted spending. Starting backlog for 2018 plus new starts in 2018 minus all spending in 2018 generates the forecast work remaining in backlog for the start of 2019.

The predicted spending plot will be added here after July 1 Census spending release.

Much more to come in next few days. edz

Construction Spending April 2018 – 6-1-18


Construction Spending for April is up 1.8% from March and up 6.6% Year-to-date (YTD) from 2017. Both Feb. and Mar. were revised up slightly.

YTD$ Jan-Apr 2018 vs 2017 > Residential +8.7%, Nonresidential Buildings +6.0%, Nonbuilding Infrastructure +3.7%. Public +7.6%, Private +6.3%.

Spending in current $ has reached a new high of $1,310 billion surpassing the previous high spending from 2006. But after adjusting for inflation, constant $ shows volume is still 13% below the 2005 peak.

Spend current vs constant 2018 6-1-18

Census is reporting a 1.8% mo/mo gain from March. I am not seeing such a huge jump in April construction spending over March. My data shows very slight growth from Mar to Apr, possibly because my SAAR factor produces a much higher SAAR for March than the Census factor. The Census factor, which appears unusually low in March, lowers March (to a decline) and increases April growth.

Year-to-date indicators are often a better indicator of a growth trend than mo/mo comparisons. But, YTD can be deceiving. When both years being compared have similar slope to spending growth, YTD works well. But if one year has a declining slope and the other year an increasing slope, YTD values can vary widely from expected annual total yr/yr growth.

For example, Manufacturing shows YTD growth from 2017 is down 4.1% through April.  Monthly spending in 2017 trended down most of the year starting at the highest, $74bil in Q1 2017, dipping as low as $61bil in Dec. For 2018, just the opposite trend is taking place. 2018 started in Jan at a rate of $65bil and is projected to finish the year at $72bil.

This means YTD comparisons for 2018 vs 2017 will start out at the lowest percent change for the year (-4.1%) and finish with 2018 values increasing and 2017 values decreasing. By the 4th quarter the mo$2018/mo$2017 could reach +20%. That diverging trend will continually move the average YTD up such that, for the first half of the year, YTD gives no clear indication of the expected annual performance.

Similar patterns, or at least partially similar patterns, can be found in Office, Educational, Power and Amusement/Recreation.

Overall, this indicates construction spending will experience an improving picture through the year. I’m predicting total YTD performance will increase every month into the 4th quarter. From April to September 2017, total monthly spending was declining. In 2018, for this same period, spending is predicted to increase every month. This will result in rapidly increasing YTD percents during this period. YTD will increase from 6.6% in April to 9% in the 3rd quarter. Even if spending were to realize no additional gains in 2018, the YTD% would still increase from now into the 4th quarter, because 2017 values declined.

The latest data comes in as expected, so does not appreciably change my outlook. I’m still forecasting 8% to 10% growth across all sectors and I expect 2018 will reach a total $1,350 billion in spending.

The outlook is particularly strong for Residential, Educational, Amusement, Office and Transportation. Transportation may exceeding 25% growth. Highway/Bridge and Healthcare growth will be limited.


Notes on March 2018 Construction Spending 5-2-18

Construction Economic Activity Notes 4-25-18

Construction Economics Brief Notes 3-10-18

2018 Construction Spending Forecast – Mar 2018


Notes on March 2018 Construction Spending


Construction Spending March down 1.7% from Feb, BUT, Feb was revised UP by 2.6%, 2nd largest mo/mo revision in 7 years.

Today is 2nd upward revision to January construction spending, now up 2.5% from original issue. Jan/Feb 2018 up 6% from Jan/Feb 2017

Should you be worried that construction spending for March was reported down 1.7% from Feb. No! Not unusual for 1st report of monthly construction spending to come in down. It’s normal. Current unadjusted monthly value is ALWAYS being compared to a (most always upwardly) revised value.

Last 5 years the 1st release of spending was reported down 25 times from the previous month. 20 of those were later revised up.  The 1st report of spending has been revised up 55 times in the last 60 months.

Residential construction spending Q1 2018 UP 5% from Q4 2017, up 8% from Q1 2017

Looks to me like the rapid growth in MF occurred in 2014-2016, Still had minor growth in early 2017 but rate of growth had slowed dramatically. Essentially, no growth at all since Q2 2017. MF trend seems flat to down. I see all RSDN trend slowing, potentially down in 2019.

Keep in mind, Rsdn inflation has averaged over 5.5%/yr for last 5 years. If residential spending is not increasing greater than 5.5%/yr, then real volume is declining.

Nonresidential Bldgs construction spending Q1 2018 up 5%+ over Q1 2017.

Why is Manufacturing construction spending down YTD vs Q1 2017, when I’m predicting 14% gain this year? Because Q1’17 was the high for 2017 and dropped 13% by year end, whereas Q1 2018 is the low for the year, expecting 16% growth by year end.

Spend YTD Mnfg 5-3-18

Public Safety, +19% ytd is the biggest percent gainer in Nonresidential Bldgs spending, but has a very small share of total $ spending. The biggest $ gainers are Commercial, +$1.8bil, Lodging and Healthcare both at +$0.8bil.

Infrastructure construction spending Q1 2018 up only 1.5% from Q1 2017, held down by power -6% and highway -3%, two largest markets. Transportation up 21%.

Environmental Public Works, comprised of the following, is up 12 % from Q1’17. Conservation up 25%. Water Supply up 10%. Sewage Waste Disposal up 8%.

Although I’m forecasting only 4% growth in the Power market, it is down YTD vs Q1 2017 for the same reason as Manufacturing. Q1’17 was the high for 2017 and dropped 6% by Q4 2017, whereas Q1 2018 is the low for the year, expecting 11% growth by year end.

Spend YTD Power 5-3-18

Transportation construction spending posted the largest $ growth in Q1 2018 of any market, up nearly $2bil over Q1 2017. Year-to-date, Trans is up 21% over 2017. In my 2018 Forecast, I forecast Transportation to gain 35% in 2018 over 2017. YTD will increase over next 6 months. The next two quarters in 2018 will show continuous growth vs 2017 in which April through Sept posted no growth over Q1’17.

Spend Transport 5-3-18

I’ve been forecasting 25% to 35% growth in Transportation spending since November. Other analysts projections range between -1% to +7%, $8bil lower than my forecast. 2017 new starts more than doubled from 2016, due to several very large terminal and rail projects. Also 2016 is still contributing an out-sized share of work to 2018 spending. The elevated rate of growth in Transportation spending will extend into 2019.


Public Construction Spending in Q1 2018 is up 6.7% from Q1 2017. Single largest $ gain is Transportation, up $0.9bil. As a group, Environmental Public Works is up 12%, up $1bil. Public Office and Educational are each up $0.5bil. This is the best growth in public spending since 2015vs2014 and is better than any other quarter back to 2008.


2018 Construction Spending Forecast – Mar 2018

Advanced Building Estimation 5-16-18

This is a partial selection of slides I will be presenting on May 16 in Dallas at Hanson Wade’s Advanced Building Estimation Conference. I’m covering the topics Inflation/Escalation and Forecasting particularly as it relates to staffing planning.

EdZarenski ABE Presentation on Twitter 5-18-18

EdZ ABE slides ALL PDF 5-18




Construction Economic Activity Notes 4-25-18


Brief notes on spending, starts, backlog, jobs and inflation from March and April tweets.

Nonresidential construction spending is not decelerating in 2018. Will see best growth since 14% in 2015.

Residential construction spending is slowing to +7% growth in 2018, after 6 consecutive years of strong growth averaging 13%/year.

Non-building Infrastructure forecast growth of 8% in 2018, potential to hit a new all-time high due to very large projects in Power and Transportation.

Public construction spending in 2018 is forecast to reach $307 billion, an increase of 8% over 2017, the best growth in 10 years. Educational and Transportation will contribute equally and together account for more than half of the Public spending growth in 2018.

In Oct 2016 and again in Feb 2017, I forecast Manufacturing spending would fall 13% in 2017 after hitting peak spending in 2015 from massive growth in new starts in 2014. At that time, the AIA consensus forecast (average of seven analysts) was that spending would increase +0.4%. By July the consensus had been revised to average -6.6%. I updated my forecast to -11.8%. Based on cash flows, from April 2016 through the end of 2017 I expected spending to decline in 17 of 21 months. It declined in 14 of those months. Manufacturing spending finished 2017 down 11.9%.

In Fall 2017, I predicted Manufacturing construction spending would increase +9% in 2018. However, through March, total construction starts for Manufacturing over the last 12 months would count as the 2nd highest year on record. Therefore I’ve recently revised my forecast up to +13% spending in 2018. I’m now expecting double digit % spending growth in both 2018 & 2019. The January 2018 AIA consensus estimate is for +2.8% increase in 2018 spending and +5.2% in 2019. Some analysts predict 2018 spending will decline. My data shows increases in starts and backlog indicate large gains.

Nonresidential Buildings new starts are up 55% in four years. 2018 starting backlog is the highest ever, up 24% in two years.

Nonresidential Bldgs 2018 starting backlog is 55% higher than at the start of 2014, the beginning of the current growth cycle. Spending is UP 38% with 2018 spending forecast up 9%. Institutional accounts for 52% of 2018 construction spending growth, Commercial 27%, Industrial 21%.

80% of all nonresidential buildings construction spending forecast in 2018 is already in backlog projects at the start of the year.

New Construction Starts are booming (need to look past the mo/mo and ytd)

  • Residential – 2 highest qtrs since 2006 in last 12 months
  • Nonres Bldgs – 3 highest qtrs since Q1 2008 in last 15 months
  • Nonbldg Infra – highet qtr since Q1 2015 peak in last 6 months.

Construction Starts data is regularly misinterpreted in common industry forecasting articles. Starts do not directly indicate changes in spending. A Forecast Cash Flow from Starts gives an indication of the rate of change in spending.

Educational new construction starts total from the last five months of 2017 posted the highest 5mo total starts in at least seven years, 13% higher than the next best 5mo. Jan 2018 monthly spending up 12% from 2017 mid-year low.

Healthcare construction starts have quietly increased to a record high over the last two years, up 30% for the 12 months through August 2017 vs the previous 12 months. Spending will increase slowly.

Amusement/Rec construction starts avg of +15%/yr for 5yrs, up 30% in 2016, 5% in 2017. In last 6mo, Aug 2017 to Jan 2018, four very large billion$+ projects started, almost a year’s worth of new starts in 6mo. Backlog indicates 15%-20% spending increases for 2018 and 2019.

In 2010, Warehouse new construction starts were only 1/3 of Store new starts. In 2018, Warehouse starts will be 50% greater than Store starts. Warehouse starts have increased between 20%-40%/year for seven years and are now five times greater than in 2010.

Lodging starting backlog up 13% for 2018, having already averaged increases of 30%/yr since 2015. Starting backlog jumped from $7 bil/yr in 2014 to $17 bil/yr in 2018, supported similar spending growth. Although 2016 was peak starts, it looks like 2018 will be peak backlog.

New construction starts for Manufacturing total for the last 12 months would count as the 2nd highest year on record. I’m now expecting double digit % spending growth in both 2018 & 2019. The consensus estimate is for +2.8% increase in 2018 spending and +5.2% in 2019. Some analysts predict 2018 manufacturing bldg spending will decline.

Structural steel contract includes structural shapes, steel joists, metal deck, stairs and rails, about 10% of total building final cost.

Other steel in a building can include reinforcing steel, exterior metal wall panels, metal ceiling frames, wall studs, door frames, canopies, steel duct, steel pipe and conduit, about 6% of total building cost.

All steel (in a structural steel building) is at least 16% of total building cost. There are more hidden costs of steel in mechanical, electrical and plumbing equipment.

Raw mill steel is about one fourth the final cost of structural steel installed. A 25% increase in cost of mill steel could raise a structural steel subcontract bid price by 6.25%. At 10% of total building budget, that would raise total building cost by 0.625%.

A 25% increase in cost of mill steel could raise the other nonstructural steel costs by 6.25%. At 6% of total building budget, that would raise total building cost by 0.375%.

A 25% tariff on mill steel raises building cost inflation by at least 1%. That’s about $7.5 billion of unexpected cost inflation just in 2018.

Watch for unexpected impacts from steel tariffs, potentially adding 5% or more to total cost of bridges (plate steel). Also impacted, power industry, pipeline, transmission & communication towers, transportation.

Steel tariff could inflate the cost of the proposed $2.1 billion Gordy Howe International Bridge by $100 million. That would hurt the budget.

2018 Construction Spending Forecast – Nonresidential Bldgs construction spending in 2018 forecast to reach a new high, $459 billion, up 9% over 2017, passing the previous 2008 high. In constant $, 2018 will still be 18% below peak.

An estimator could be far off when indexing construction cost using a general cost index versus an actual selling price index.

Failure to account for the affect of inflation on the cost of construction could result in a failure to be profitable.

For the last 4 to 5 years average inflation for nonresidential buildings is 4.5% to 5%.

For the last 4 to 5 years average inflation for residential buildings is 5.5% to 6%. In 2013 it reached a 12-year high of 8%.

If you are hiring to meet your needs and you see that construction spending (revenue) has increased by 25%, do you hire to match revenue? No! Hiring requires a knowledge of volume growth, and revenue doesn’t show that. Revenue minus inflation shows volume.

Construction activity has a direct influence on construction inflation. Nonresidential Buildings and Non-building Infrastructure backlog are both at all-time highs.

Construction Jobs vs volume growth the last 5 years is nearly even, yet jobs imbalances exist within sectors. Nonresidential Buildings and Non-building Infrastructure show excess jobs while Residential shows a severe jobs deficit. But not all of the apparent deficit in residential jobs is real.

Are all residential jobs being counted? Several studies suggest that a large portion of residential construction jobs may be held by uncounted immigrant or day labor. So it’s possible the residential jobs deficit may not be as large as shown.

In addition to uncounted immigrant labor, some labor is mis-classified. Take for example, a high-rise multi-use building with commercial retail, office and residential space. Census definitions of spending classifications break out spending into the 3 market sectors, but the building is built by high-rise contractors (probably normally classified as commercial), not a residential contractor. This is residential space built using labor classified as non-residential commercial.

BLS writes this: “Establishments are classified into industries on the basis of their primary activity… For an establishment engaging in more than one activity, the entire employment of the establishment is included under the industry indicated by the principal activity.”

So, the mis-classified labor reduces the nonresidential excess and offsets a portion of the residential shortfall.

Construction added 1,339,000 jobs in the last 5 years. The only time in history that exceeded jobs growth like that was the period 1993-99 with the highest 5-year growth ever of 1,483,000 jobs. That same 1993-99 period had the previous highest 5-year spending and volume growth going back to 1984-88.

Construction added 177,000 jobs in the 4 months Nov’17-Feb’18. That’s happened, for any 4-month period, only 5 times since 1984. The last time was 2005-06, during the fastest rate of spending increases since 1984.

Construction jobs pulled back 15k in March, but this follows the strongest month (Feb +65k) in 12 years, so not totally unexpected. I think Mar Construction jobs, (-15k), more likely a pause after Feb (+65k), strongest month in 12 years.

see also Construction Economics Brief Notes 3-10-18

and also Notes on March 2018 Construction Spending 5-2-18

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