Sample PP Slides for Economic Forecast Q2 2023

On Thursday morning May 25th, I will be presenting my Q2 2023 Construction Economic Forecast at Hanson Wade’s Advancing Preconstruction conference in Phoenix, AZ. Here is a selection of the slides cut from the full presentation.

The full presentation covers the data used in preparation of the full forecast, and it’s potential impact on the outcome, including Construction Starts, Backlog, Cashflow, Spending, Inflation, Business Volume, Jobs and Risk.

Hanson Wade’s Advancing Preconstruction conference is one of the largest, if not the largest, preconstruction conferences held in the United States. This is my 6th year presenting at AP.

The Next Forecast Challenge

The next big challenge in construction forecasting is to determine, Will Nonres Bldgs spending increase without an equal increase in nonres bldgs jobs? If so, by how much?

At the onset of the Pandemic, nonres bldgs jobs dropped 16%. Jobs have since recovered to down only 1% vs Feb 2020. Spending (bottomed in Sep 2021) fell 17%, but is now up 15% over Feb 2020.

But the key to this comparison is inflation, which, when subtracted from spending gives real volume growth. Inflation adds only to spending, it adds nothing to volume of work.

Nonres Bldgs inflation was 2.4% in 2020, 8.2% in 2021 and 11.9% in 2022. Total Nonres Bldgs inflation from Feb 2020 to Mar 2023 is 26%.

Since the onset of the Pandemic, Nonres Bldgs spending is up 15% but after inflation volume is down 8%. During that time jobs are down 1%. That’s now over three years that jobs exceed volume of work. Let’s look at more recent data.

In the last 12 months, Mar’22 to Mar’23, nonres bldgs jobs are up 3.5%. Nonres Bldgs spending is up 21%, but after ~7% inflation, volume of nonres bldgs workload is up 14%. So, we have a 3.5% increase in jobs to accomodate a 14% increase in volume.

The last year has shown a huge increase in the volume of nonres bldgs work, without an equal increase in jobs. This shows the excess nonres bldgs jobs for the past three years is now absorbing greater workload, (a 3.5% increase in jobs to accomodate a 14% increase in volume), without a cry of jobs shortages.

What’s the real magnitude of this difference in percent growth, a 10.5% increase in volume over jobs. Well that 10.5% increase in volume is $50 billion worth of construction put-in-place. Not delayed, not canceled, put-in-place. With no equal increase in jobs. So the existing jobs put this work in place. $50 billion in one year would normally require 250,000 jobs to put-in-place. Or by using overtime and working the existing workforce longer hours to get it done, the entire nonres bldgs workforce of 3.5 million would need to work 10 hour days 5 days a week to put that much extra work in place. Well, BLS reports hours worked changed by less than 1 hour/week.So, it wasn’t accomplished with added jobs and it wasn’t accomplished with overtime.

Some regular readers here could probably point back to a half dozen articles over the last few years in which I describe nonres bldgs volume levels had dropped but jobs had not. I mentioned before that existing jobs could and probably would absorb some of the growth. That could occur if there were a need to backfill volume to support the existing workforce.

The forecast for Nonresidential Buildings spending in 2023 is +20%. After 6% inflation, volume is forecast +14%. Jobs will not increase by 14%. Jobs have never increased more than 5% and normal is 3.5%. A 14% increase is equivalent to 500,000 jobs, just to support the growth in nonres bldgs. 500,000 jobs is double the normal annual rate of growth for all construction jobs. Nonres Bldgs is is only 33% of all construction

So the questions for the forecaster are these, 1) do we break the mold for construction jobs growth and add half a million jobs, and exceed all known indicators on construction jobs growth?, 2) Will volume vs jobs grow similar to the previous year, volume up 14% and jobs up 3.5%?, or 3) Does nonres bldgs volume growth slow down to a rate of growth more in-line with jobs growth?

I’m heavily leaning to #2, volume will exceed jobs growth. Some of the added work in the near future will be absorbed by the current workforce, but the workforce has already absorbed a great deal in the past year. Also I do think I’m partly leaning towards #3, volume growth will slow to less than currently predicted, although not nearly to the low level of historical jobs growth. I don’t expect jobs growth to exceed historical maximum of 5% annually, 175,000 nonres bldgs jobs. I do expect volume growth will exceed jobs growth, but by much less than in this past year. I do expect to extend the forecast spending out to a further date.

Construction Data Briefs APR 2023

Construction is booming. Nonresidential buildings is leading growth. For the first two months of the year, total construction spending year-to-date (ytd) is up 5.9%, but nonresidential buildings spending is up 23% ytd, the fastest rate of nonres bldgs growth in over 20 years. Nonresidential buildings annual rate of spending has increased 19% in the last six months. Nonbuilding spending ytd is up 8%. Nonbuilding annual rate of spending increased 10% in the last four months. Residential spending peaked in March 2022. Since then the annual rate of residential spending has dropped 11%.

Total Construction Spending in 2023 is now forecast to reach $1,894 billion, an increase of 5.3% over 2022.

Nonresidential Buildings spending in 2023 is now forecast at $629 billion, an increase of 20.3% over 2022.


The rate of construction spending in 2023 will be influenced predominantly by a 40% increase in new nonresidential building starts in 2022. In recent years, new nonres bldgs starts averaged $300 billion/year. In the 2nd half of 2022, starts averaged over $500 billion/year. Many of those projects will have peak spending in 2023. Some will occur in 2024.

Residential construction (Dodge) starts posted the five highest months ever all in the 1st 6 months of 2022. In the second half of 2022, residential starts fell 15%. In Jan and Feb 2023, starts dropped another 20% below 2nd half 2022. Starts are now down 25% in 12 months.

Nonresidential Bldgs starts in 2022 posted the largest ever one-year increase in new nonresidential buildings construction starts, up 40%. Starts were also up 15% in 2021. Nonres Bldgs new starts in the 2nd half 2022, averaged 67% higher than any other 6mo period in history.

Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150%. Office is up 36% (datacenters), Healthcare up 17%, Comm/Rtl up 23% (warehouses).

Non-building starts increased more than 100% in July 2022. The 2nd half 2022 was up 50% over 1st half 2022. Starts for 2023 are forecast up 15%. For 2022, Highway up 25%, Transportation up 45%, Power up 30% and Public Works up 15%.


Construction Spending through February 2023 is up 5.9% ytd. Spending is forecast to finish 2023 up 5.3%.

While residential falls back nearly 7% in 2023, Nonresidential buildings is leading with a forecast of 20% spending growth.

Total construction spending for 2023 is on track to increase +5.3%. Residential -6.7%, Nonres Bldgs +20.3%, Nonbldg +13.5%.


In 2023, it’s Nonresidential Buildings leading growth. In 2024, it will be Nonbuilding Infrastructure leading spending growth. Both are expected to grow greater than the inflation index.

See also Construction Spending Outlook – Feb 2023

Current $ Spending, Inflation and Volume SEE Construction Inflation 2023

Inflation adjusted volume is spending minus inflation, or to be more accurate, spending divided by (1+inflation). The following table shows spending, inflation and volume (spending without inflation) for each year. All $ are current to the year stated. This table shows that inflation adds nothing to volume growth. All values in this table are current to the year stated. The values in this table are not indexed to a constant value year. This is an attempt to show that business volume in any given year is not as high as spending would indicate. When inflation is positive, volume is always less than spending by the amount attributed to inflation.

Spending during the year is the value of business volume plus the inflation on that volume. When inflation is 12%, volume plus 12% = total spending. Revenue is generally measured by spending put-in-place during the year. In 2022, Nonresidential buildings business volume was 12.2% less than spending, or less than revenue. Residential volume was 15.7% less then spending.


Overall Construction Spending is up 22% in the 36 months since the onset of the pandemic, but, during that same period inflation increased 31%. After adjusting for 31% inflation, constant $ volume is down 7%. So, while the plot on the left shows three years of increases in spending, the actual change in business volume is still down and has not yet returned to the pre-pandemic peak in Feb-Mar 2020.


Nonresidential Buildings spending in 2023 is forecast at $629 billion, an increase of 20.3%, or $100 billion and add another $50 billion in 2024.

In 2022 we realized the largest ever one-year increase in new nonresidential buildings construction starts, up 40%. Starts were also up 15% in 2021.

The AIA Consensus Construction Forecast, December 2022 predicts only a 5.8% increase in spending for nonresidential buildings in 2023. My beginning of year forecast for comparison was 15.8%. My current forecast is +20.3%.

We began the year with record new starts indicating an increasing spending rate. The monthly rate of spending is up 12 of the last 14 months, has increased for 6 consecutive months and is up 20% in the last 6 months. The rate of spending is predicted to increase 10 out of 12 months in 2023, a total increase of 11% over the year. Barring any unforeseen negative occurrence, the trajectory in the rate of spending is increasing.

Year-to-date nonresidential buildings spending for Jan+Feb is up 23%. This is driven by Manufacturing, up 53% ytd, but also supported by Lodging up 38% ytd and Commercial/Retail up 23% ytd. Every nonresidential building market except Educational (up only 8%) is up greater than 10% ytd.

Nonresidential buildings spending fell 17% from March 2020 to Sept 2021, then increased 36% from Sept 2021 to Feb 2023. Currently, as of Feb 2023, spending is 14% higher than the pre-pandemic peak in Feb 2020. But nonresidential buildings inflation over that same 36 months increased 26%. Business volume in constant $ actually fell 25% from Feb 2020 to Sept 2021, and hit a secondary low in mid-2022. Since then, the actual change in business volume has increased 18%, but that still leaves volume nearly 10% lower than the pre-pandemic high.

Non-building Infrastructure spending for 2023-24 is forecast up 25%, up $50 billion/year for two years. Non-building Infrastructure will post the 1st year of sizable gains since 2019, forecast at $415bil, up 13.5% in 2023. In 2022, Highway and Public Utilities posted strong gains of 9.1% and 16.6%, but those gains were offset by a 8.7% decline in Power. For 2023, Highway and Transportation recorded the strongest starts in five years. All markets post spending gains in 2023, with Highway up 26%, Transportation up 9% and Public Utilities up 8%.

Non-building Infrastructure spending is up 4% in 36 months since Feb 2020. After adjusting for 26% inflation, constant business volume is down 17%.


Residential starts are forecast down or flat in 2022 and 2023. Spending grew 44% in the last 2yrs, but inflation was 30% of that 44%. With no growth in starts forecast for 22-23, spending will struggle to keep up with inflation. Residential spending is forecast to fall 7% in 2023. Most of the decline is single family. Single family is down a total of 23% over 10 consecutive months. Multifamily is up 22% over 13 consecutive months. Renovations gained 25% in 2022 but spending varies +/- 10% throughout the year. Midyear there is potential for 6 consecutive down months in residential spending.

DOES VOLUME OF WORK SUPPORT JOBS GROWTH? or, Can jobs growth support volume of work?

Jobs should track volume, not spending growth. Volume = spending minus inflation. Volume is down, although now increasing, while jobs are up. Nonres Bldgs volume, in constant $, fell 25% from Feb 2020 to Sept 2021, and hit a secondary low in mid-2022. Since then, the actual change in nonres bldgs volume has increased 18%. Yet nonres bldgs jobs increased only 3.5%. That still leaves volume nearly 10% lower than the pre-pandemic high. If the same production levels ($ put-in-place per worker) as 2019 were to be regained, theoretically, nonresidential volume would need to increase 10% with no increase in nonresidential jobs. For now, productivity is well below that of 2019.

Nonresidential Buildings spending in 2023 is forecast at $629 billion, an increase of 20.3%, or $100 billion and another $50 billion in 2024. Non-building Infrastructure spending for 2023-24 is forecast up 25%, up $50 billion/year each year.

This growth amounts to an increase of $150 billion in 2023 and $100 billion in 2024. It takes 5000 jobs to put-in-place $1 billion. So $100 billion in 2024 would need 500,000 new jobs. 2023 would need 750,000 new jobs.

If we were to grow the labor force to meet the newly identified workload added from new starts, we would need to double the prior maximum rate of construction jobs growth. Normal growth is about 250,000 jobs per year and maximum prior growth is about 400,000. The workload discussed above would require 750,000 + 500,000 new jobs back to back. That’s an expansion of the industry by 15%, in an industry that normally grows 3%/yr. This industry can’t grow that fast. (Which means I need to account for over-capacity growth as a potential reduction in future forecast. You can’t increase spending that fast if you can’t expand the industry that fast).

4-16-23 update- Everything forecast above is predicated on the normal cash flow of forecast new starts. As of yet, this forecast has not been reduced to reflect the inability of the industry to expand jobs fast enough to absorb the volume of spending generated from forecast starts. Whether new starts get canceled or delayed, spending needs to be reduced annually for at least the next two years simply because jobs cannot increase fast enough to put-in-place the forecast spending. This impediment needs to be accounted for and could reduce overall construction spending forecast by approximately $40-$60 billion in 2023 and $25-$40 billion in 2024. The most likely markets where a reduction would occur are Manufacturing, Highway, Commercial/Retail and Office.

SEE more discussion on Volume and Jobs

here 2023 Construction Volume Growth

and here Infrastructure Construction Expansion – Not So Fast

2023 Construction Volume Growth

Construction volume is spending without inflation. If we want to know whether business is growing, we need to look at spending without inflation, or volume of business. Volume is what dictates the need for jobs.

If an apple this yr cost 50c, and last yr it cost 40c, the revenue changing hands has gone up 10c or 25%. Volume of business changing hands has not changed, it’s still only one apple. Inflation adds nothing to the volume of business.

For 2021 and 2022, total construction spending increased 8.5% and 10.6%. But, inflation was 11% and 15%. In both years, inflation was higher than spending. First, subtract inflation from the total spending. That’s gives the dollar amounts for the Spending w/o Inflation Current $ table. Then volume growth can be compared year to year. Volume growth calculation is Vol this yr/Vol last yr, but first, it is dependent on each individual year spending minus inflation.

Volume each individual year is calculated as spending minus inflation. But growth in Volume from yr to yr is Vol this yr/Vol last yr., so is often different than growth in spending.

The volume of construction work completed in 2021 ($1.467tril) is 11% (avg inflation 2021 less than 2021 spending ($1.626tril)

The volume of work completed in 2022 ($1.574tril) is 15% less than 2022 spending ($1.798tril)

So, while Spending growth is 1.798/1.626 = 10.6%, Volume growth is 1.572/1.467= 7.2%.

All the plots below show spending, volume and jobs. Current $ in 2010 are not the same as current $ in 2023, so all $ are indexed to the same constant point in time, constant $, so they can be compared. Constant $ then shows the cumulative growth from that point in time.

This plot shows the cumulative change in Total All Spending, Volume and Jobs since Jan. 1, 2020. From 2019 to 2022, Spending is up 29%, Volume is up only 18% and Jobs are up only about 2%. Below are plots that show the differences in jobs and volume growth for each sector.

Residential 2022 spending is = $900bil. Inflation is 15%. Without inflation, residential volume is up $780bil. Residential spending in 2023 is forecast at $850bil. If residential inflation for 2023 comes in low, say at 4%, then w/o inflation residential volume in 2023 would be $820bil. 2023 spending would be 6% lower than 2022, but volume is 5% higher. All due to the huge bite that 15% inflation took out of 2022 spending.

Recently, residential jobs have been holding relatively close to volume. In 2019 and 2022 they were even. That is not the case for the rest of construction.

Nonresidential Buildings and Non-building Infrastructure constant $ volume since Jan. 2020 is down about 25%. Note how jobs dropped less than 10%. This, not residential, is what is driving the deficit of volume shown in the Total All plot above. The major growth forecast in Nonres Bldgs and Non-bldg in 2023 and 2024 should help offset some of the difference.

Both Nonres Bldgs and Non-bldg have a very large number of jobs currently not supported by volume. This could be contractors holding on to their labor in a slack period so they have the labor when needed. Those jobs could potentially absorb a lot of the anticipated growth in the spending forecast. The volume growth in these sectors would indicate a needed jobs growth that far exceeds the ability of the construction industry to add jobs.

The current excess of jobs could absorb a lot of the volume growth. In 2020-2021, jobs increased about 2% but volume of work decreased 20% to 25%. These should move in tandem, not in opposition. The data counters the narrative of jobs shortages. In these two sectors, jobs had reached the highest ever excess jobs over volume. This does not address the alternative, skills shortages. But the data seems to indicate there could be a lot of bodies that could take on a large amount of growth in the volume of work.

From Q4’21 to Q1’23, Nonres Bldgs volume increased 25%, $100 billion. Nonres Bldgs jobs increased 4%, 140,000 jobs. A $100 billion add in one year is equivalent need to 500,000 jobs, and yet the workforce added only 140,000 jobs. The rest of the work was absorbed by the current workforce. I expect the volume growth over the next two years will increase much faster than jobs growth. That would be very good for the construction industry.

The volume growth in these sectors would indicate a needed jobs growth that far exceeds the ability of the construction industry to add jobs. The most jobs ever added in the last 50 years is just over 400,000. The average jobs added in the last 12 years is 225,000 (excluding the 230k lost in 2020) and the most in one year in the last 12 years is 320,000. It’s reasonable to assume the industry can add 300,000 to 400,000 jobs a year.

We either accept that we can’t add enough jobs to support increasing the workload by that much or we can’t add the anticipated workload in the forecast.

If we accept the forecast volume growth over the next two years, we simply could not add enough jobs in one or even two years to accommodate all the volume of work forecast. Both the Nonres Bldgs and Non-bldg plots above show a steep incline in the volume of work added, but not nearly as steep an incline in the number of jobs added. This can be correct only if a large percentage of the work added is absorbed by the current workforce. The alternative is that much work can’t be added that fast.

2023 volume growth is $250 billion, mostly nonresidential buildings. It takes 5000 jobs a year to put-in-place $1 billion. Forecasting that growth is put-in-place over 2 to 3 years, that’s about $100 billion/year. That’s 500,000 jobs for 2 to 3 years, which means there is too much work added in a year. My current forecast does not reduce for this, yet.

An extension of this discussion is here The Next Forecast Challenge

Construction Spending Outlook – Feb 2023


Total construction spending in 2023 will increase only 4.2% over 2022. Nonresidential Buildings will lead construction spending in 2023 with a forecast gain of 18%.

The last two years, 2021 and 2022, total spending increased 8.5% and 10%. However, inflation in 2021 was 11% and in 2022 was 15%, both higher than spending. Real construction volume for the year is spending without the inflation. The volume of work completed in 2021 is 11% less than 2021 spending and in 2022 is 15% less than the total of 2022 spending.

The rate of construction spending in 2023 will be influenced predominantly by a 38% increase in new nonresidential building starts in 2022. In fact, even more meaningful, Nonres Bldgs new starts, in 2nd half 2022, averaged 68% higher than any other 6mo period in history. In recent years, new starts averaged $300 billion/year. In the 2nd half of 2022, starts averaged over $500 billion/year. Many of the projects peak spending will occur in 2023. Some will occur in 2024. Total spending forecast for Nonres Bldgs in 2023 is $616bil, an increase of 18.5% over 2022.

Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150%. Total new starts for the past 2 years is up over 400%. It will take at least a year to determine how much of that growth is an increase in total new construction and how much is an increase in capture of data  in the starts survey.

Non-building starts for 2022-23 are forecast up 50%. Spending 2023-24 is forecast up 23%.

Non-building Infrastructure will post the 1st year of sizable gains since 2019, forecast at $400bil, up 9.6% in 2023. In 2022, Highway and Public Utilities posted strong gains of 9.0% and 16.5%, but those gains were offset by a 9.0% decline in Power. For 2023, Highway and Transportation recorded the strongest starts in five years. All markets post spending gains, with Highway up 12.0%, Transportation up 15.0% and Public Utilities up 11.5%.

See this discussion on Infrastructure and Jobs here

Infrastructure Constr Expansion – Not So Fast

Residential starts in 2021 were up +21% to what was then a new high. Starts peaked in the 1st half 2022 then started a decline in 2nd half 2022. By Q4’22, the rate of new starts dropped by 20%. Starts are forecast down 2% in 2023.

After three years of gains totaling 64%, expect residential spending to decline 6% in 2023. Single Family (47% of rsdn) spending peaked in April and since is down 20% in eight consecutive months. Multi-family (15% of rsdn) is up 11 consecutive months, now up 19% from January 2022. Reno/Rpr (38% of all rsdn) is up 25% for the year, but in the last five months, the rate of spending has fallen 15%. Only multi-family is currently trending up. 75% of all gains in multi-family occurred in the 4th quarter.

For the past 3 years, 2020-2022, Reno/Repair construction spending has gone up 1.26 x 1.16 x 1.25 = 1.8x, or 80%. Spending is currently down 17% from the peak in 4 of the last 5 mo. If the SAAR were to stall where it’s at now for the rest of 2023, spending will be down 10% for the year and will still be up 1.65x over last 4 years. Sure, it’s down, but it’s still high.

Residential spending grew 44% in the last 2yrs, but inflation was 30% of that 44%.

The annual rate of spending in all Nonresidential Buildings markets increased from Q1 to Q4 2022 and also Q4 spending in every market was higher than the average for 2022. Heading into 2023, nonresidential buildings markets start out the year with the annual rate of spending already 8% higher than the average 2022, and the trend has been up. The annual avg is usually much higher than Jan of the year, so I’d expect 2023 to come in higher. Although there are a few moderate dips in spending in some markets during the year, every market adds growth in 2023.

NOTE: The Census spending release on 2-1-23 is the 1st release to capture Dec data and therefore all months in 2022. The 3-1-23 release will revise both Dec and Nov. The 4-1-23 release will revise Dec. And the 7-1-23 release will revise any/all months needing further revision in both 2021 and 2022, sometimes with hefty changes. Historically, revisions are predominantly UP.

See Behind The Spending Forecasts

for a table showing the annual rate of spending for each market in the 4th qtr compared to the 2022 average. That’s the rate of spending starting out 2023.

Starting out the year with (Dec’22) an annual rate of spending already averaging 8% greater than 2022, coupled with 38% growth in new starts in 2022, much of which will be spent in 2023, produces the strongest year of growth in nonresidential buildings construction spending since 2007.

3-1-23 Surprises in the Census Construction Spending for Jan.

Nonres Bldgs January 2023 spending begins the year at a rate up 16% vs avg 2022 and up 23% YTD vs Jan 2022. Just one month ago the Dec. rate of nonres bldgs spending was only 8% higher than the average of 2022. This is Nonres Bldgs construction spending best start to the year since my records back to 2001. All indications are spending will increase throughout the year. I had forecast Mnfg in 2023 up 35% and total Nonres Bldgs up 18%. Now I have Mnfg up 40% and Total Nonres Bldgs up 20%.

If spending continues to increase at even a moderate pace, we could see the year end with Mnfg spending up 45% and total Nonres Bldgs spending up 25%.

  • Mnfg starts Jan +54% ytd and +33% vs avg 2022.
  • Comm/Rtl starts Jan +23% ytd and +18% vs avg 2022.
  • Lodging starts Jan +42% ytd and +18% vs avg 2022.
  • RSDN starts Jan -6% ytd and -5% vs avg 2022.
  • Highway begins 2023 +16% ytd and +8% vs avg 2022.
  • Power begins 2023 -5% ytd and +3% vs avg 2022.
  • Transportation begins 2023 +10% ytd and +14% vs avg 2022.

Part of the Mnfg +54% can be explained due to the very low Jan’22. That evens out in Q4, when 2022 inflation jumped, so 2023 comparisons won’t be as high.

Below, the enlarged scale gives a better look at nonresidential Bldgs spending.

To fully understand the forecast it is necessary to discuss the impact of inflation. Construction spending includes inflation. Inflation adds nothing to business volume. Spending minus inflation gives volume. Growth, or decline, in business volume measures the actual activity growth in the construction industry. Spending measures the amount of revenue that exchanged hands to make it happen.

2-6-23 Current and predicted Inflation updated to Q4’22

  • 2020 Rsdn Inflation  4.6%, Nonres Bldgs 2.4%, Nonbldg Infra -0.3%
  • 2021 Rsdn Inflation 13.9%, Nonres Bldgs 7.6%, Nonbldg Infra 7.9%
  • 2022 Rsdn Inflation 15.7%, Nonres Bldgs 12.3%, Nonbldg Infra 13.8%
  • 2023 Rsdn Inflation 1.7%, Nonres Bldgs 4.2%, Nonbldg Infra 4.3%

Although input costs have been dropping and final demand (Nonres Bldgs) increases have been slowing, 2023 demand for nonresidential construction is going to post the largest annual spending increase ever recorded. This could reverse the trend in Nonres pricing and keep inflation higher for Nonres Bldgs.

Inflation adjusted volume is spending minus inflation. Volume of work (spending minus inflation) is what drives the need for jobs.

  • Total volume for 2021 fell 1.9%, Rsdn +10%, Nonres Bldgs -13%, Nonbldg -8%.
  • Total volume for 2022 fell 2.3%, Rsdn -1%, Nonres Bldgs +1%, Nonbldg -9%.
  • Total volume forecast 2023 is flat at 0%, Rsdn -10%, Nonres Bldgs +13%, Nonbldg +4%.

Because 2022 inflation was so high (12% to 15%), the adjustment to 2022 spending resulted in much lower volume. In 2023, spending is forecast up 4.2% (compared to last year spending) and forecast inflation is 2% to 5%. 2023 inflation reduces spending far less than what occurred in 2022. Volume gets compared to volume the previous year. Therefore volume in 2023 shows an unusually large increase compared to volume in 2022.

SEE Construction Inflation 2023

for the details of inflation costs, but here are plots of the same information as the two plots above, only difference being the plots above are Current$, dollars as reported in the current year as reported by Census, and the plots below are constant$, inflation $ has been removed. The plots below actually measure the real growth from year to year. For example, while the plot above shows residential growth in spending increased from $600 billion in Q1 2020, to $900 billion in 2022, the plot below shows most of that was inflation and after removing inflation, residential construction did increase in early 2022 but by Q1 2023 has dropped back to the same level it was at in Q1 2020.

Below, the enlarged scale gives a better look at nonresidential Bldgs volume.

Recent construction annual rate of spending is only 17% higher than March 2020, but overall total construction spending is up 30% for 2020-21-22. In that three year period there was 32% inflation, half of that in 2022. So, all of the 30% spending gain is inflation, there is no gain, (a slight drop of -2%) in volume for that three years. Residential spending increased more than 60% with rsdn inflation near 40%, so rsdn volume increased 20%. Rsdn jobs growth is near even on track with volume, but Nonres and Nonbldg jobs did not fall when volume dropped.Nonresidential had 10% volume decline in 2021. Nonres now has a volume deficit vs jobs, compared to at the end of 2019.

For a discussion of inflation effects on jobs growth visit this link where this chart will be discussed.

SEE Construction Spending – Volume – Jobs

Look Back at 2022 Construction Spending Forecasts


Initial Year end construction spending for 2022 is out today. This is when I compare my forecast for 2022 spending to all my prior monthly forecasts during the year AND I compare my midyear forecast prepared in May-June to the forecasts published at midyear in the AIA Consensus Construction Forecast. You can judge how I’ve measured up to forecasts thru the year.

This 1st table shows just the sum total in each sector for each monthly forecast I produced during the year. This year was quite unique in that new construction starts for nonresidential work increased by 60% in the 2nd half of the year, a magnitude of increase never before experienced. No one could have predicted that.

In this table I compare the actual for 2022 to the September forecast. My data analysis of 20 years of input shows that a particular set of months through and including September has forecast the end of year spending within 1.5% for nonresidential and within 2% for residential. You can see with the initial data for 2022 that the Sept forecast was within 3.2% for residential and within 2.0% for Nonres Buildings. Nonbuilding Infrastructure came in under the 1.5% threshold.

This next table is shows my midyear forecast for total 2022 spending compared to the forecasts published in the AIA Midyear 2022 Consensus. I’ve highlighted in green the closest estimate to the actual end-of-year spending report. In red is the worst forecast at midyear. This is the 3rd consecutive year that I’ve beat all the forecasts in the AIA Consensus. In fact, looking back at 2015-2019 there are several other years in which I beat out the AIA Consensus estimates.

I’m including this next plot because it shows the accuracy of my nonresidential forecasts when comparing my cash flow forecast amount to the actual spending amount. It has proven to be pretty accurate over the years.

Behind The Spending Forecasts

2-1-23 Here’s a look at Nonresidential Buildings Construction Spending Forecasts for 2023. What’s Behind a Forecast?

Two things to look at when developing a forecast: What is the current rate of spending (SAAR), and what direction has it been moving?, and, What has been the recent activity in new starts (new contract awards)?

Most of the spending from new starts (all starts in total from Jan thru Dec) occurs in the year following the start. A reasonable spending estimate (across a large volume of work) is 20:50:30. So, for the sum total of all starts in the year, 20% gets spent in the 1st year (the year started), 50% the 2nd year and 30% the 3rd year. So approximately 50% of all new starts last year gets spent this year. The ratio can be much different from market to market. In other words, the most influential factor on the rate and trajectory of spending this year (barring something such as a pandemic or a recession) is starts from last year.

Here is my current baseline data:

  • Construction spending for 2022 in the 2-1-23 release is $520 billion, up 11.6%
  • Construction Starts (per Dodge) up ~38% in 2022, up 15% in 2021 and forecast down 10% in 2023.
  • Current rate of spending (SAAR avg in Q4) is $560 bil, increasing $5bil-$10bil/month.

The increasing rate of spending makes sense, since starts were up so much in 2021 and 2022, and starts in the prior year is the greatest influence on rate of spending in the current year. Average nonres bldgs spending for 2022 is $520bil and the Q4 rate of spending is $562bil. The current rate of spending (SAAR in Dec) is 8% higher than the 2022 total spending and is increasing.

If something happened to stall spending right now at the current rate, it is at an annual rate of $562 billion, 8% higher than the average from 2022. So, as we begin 2023, with no forecast for a downturn, we could expect 2023 total spending would be at a minimum 8% higher than 2022. Since the current rate of spending is increasing, we could reasonably expect 2023 spending will add to the 8% starting advantage. This is a solid starting point for forecasting 2023 since this is already on record.

I prepared this following table to show the starting annual rate of spending for all of the markets, in particular the nonresidential buildings markets. As of Q4 2022, or the starting point for 2023, we see a few markets are only 3% to 5% above the 2022 average and a few are considerably higher. Also included in this table is the percent growth in new starts in 2022 for each market.

Let’s use an example: The Educational market, in Q4, or as we begin 2023, has monthly spending at a rate 4.9% greater than 2022. Starts increased 8% in 2022, so there will be a slight to moderate increase to spending in 2023. If spending growth stalls at the current rate, it will finish 2023 at 4.9% over 2022. The only way it should fall to less than that in 2023 is for some decline in some months in 2023 to less than the current rate of spending in Q4. Since all markets have substantial new starts to feed 2023 spending, all markets should post spending in 2023 higher than Q4 2022.

The rate of spending in 2023, being influenced predominantly by a 38% increase in starts in 2022, is projected to continue increasing throughout 2023. The monthly cashflow of the starts $ from all previous years that still generate spending in 2023 is what determines the rate of change in spending. My forecast has nonresidential buildings spending increasing steadily from a rate of $570 billion in January to $625 billion in December.

What data supports my forecast? Spending is already, in Oct-Nov-Dec, 8% higher than the average for 2022, so we begin 2023 at a rate of spending up a minimum 8% higher than the average for 2022. The average for 2023 could fall below the current 8% IF we were to experience some unforeseen negative occurrence in the coming months. I don’t foresee that happening. In 2022 we realized the largest ever one-year increase in new starts, up 38%. Starts were also up in 2021, up 15%. The monthly rate of spending is up 12 of the last 14 months, has increased for 6 consecutive months and is up 10% in the last 6 months. The rate of spending is predicted to increase 10 out of 12 months in 2023, a total increase of 11% over the year. Barring any unforeseen negative occurrence, the trajectory in the rate of spending is increasing and 2023 spending will finish well above the 8% advantage starting at the beginning of the year.

My total forecast for Nonresidential Buildings spending in 2023 is $616 billion, an increase of 18.5% over 2022.

The AIA Consensus Construction Forecast, December 2022 predicts only a 5.8% increase in spending for nonresidential buildings in 2023. Five of the nine forecasts provided in the Consensus Forecast are below the 5.8% consensus average. Only two forecasts are higher than 8% which is the projected minimum growth as we begin 2023, as explained above. As we begin the year with data, as of December, already at a rate 8% greater than the average for 2022, and with record new starts indicating an increasing spending rate, how is a forecast developed lower than that? What’s behind those spending forecasts?

This article was updated on 2-2-23 from November data to December data for clarity and to include the table showing Q4 data. Overall, the premise has not changed.

Self-Checking Forecast

Two plots track how construction forecast matches up to actual spending. The light line is the monthly growth predicted by my forecasting. The same color dark line is the actual spending. The changes in Residential dominate the 1st plot, so the 2nd plot is just Nonresidential to improve the scale.

One comment about the Residential plot: Starts, which are needed to create the forecast, may not have accounted for the extreme inflation, so spending could have easily grown to 5% to 10% higher than the starts would have forecast. Notice the similarity between the two residential plots. Although the forecast is not at the same magnitude as the actual spending, it is still predicting the slope, the change in spending. Jul20 to Jan21 is where the plots varied.

Nonresidential forecasts vs actuals compare really well. By the end of 2020, my model was predicting a low point in nonresidential buildings spending out in the 2nd half of 2021. Nobody else predicted that bottom. The Starts Cashflow model does a good job of predicting spending.

Infrastructure Construction Expansion – Not So Fast

Only once in 25 years have heavy engineering construction jobs increased more than 5% in one year (7.5% in 2018, 72,000 new jobs). Most of the time jobs growth is under 4% (40,000 jobs). Average growth the last 12 years (see notes below) is near 3% or 30,000 jobs per year.

U. S. Bureau of Labor Statistics (BLS) national data shows there are currently 1,078,000 Heavy Engineering jobs. In 2019 there were 1,084,000. There was a loss of nearly 100,000 heavy engineering jobs in early 2020 due to the onset of the pandemic. In 2022, heavy engineering jobs have been nearly constant, just above 1,070,000 the entire year.

Highway/Bridge comprises approximately 30% of all heavy engineering spending, so supports about 300,000 jobs per year.

The current forecast for new construction starts has increased the forecast for spending growth dramatically above previous years. Both starts and spending statistics give an indication of what to expect in the jobs situation. The spending forecast is indicating a need for a large increase in jobs to support the new work. Spending (also consider inflation) is the critical value that determines the need for jobs. Without sufficient jobs, the spending cannot take place. If jobs do not increase to support the forecast spending, the timeline for the spending very likely will get extended.

It takes 400 jobs per year to put in place $100 million of heavy engineering construction in the year. (Some types of work would take 500 jobs, but I’ll work with 400 here). A construction program that hypothetically adds $1 billion of new construction starts in a year would see that work put in place (for Highway work) approximately over the next few years at a ratio similar to a 15:30:35:20 schedule, $150 million the 1st year, $300 million the 2nd year, $350 million the 3rd year and $200 million in the 4th and 5th years. To support $150 million growth in the 1st year would require 600 new jobs. To support an increase of $1 billion in spending in one year would require 4,000 new jobs.

How will the average growth in jobs affect the growth in new starts and forecast spending?

Modeling the new starts forecast, based on the spending schedule outlined above, projects the spending forecast for Highway/Bridge work over the next few years will increase by $15 billion/year. This would indicate a need to add 15 x 4,000 = 60,000 new highway construction jobs each year in 2023, 2024 and 2025. But the entire heavy engineering jobs pool has increased by that amount only once in 25 years and average growth for all heavy engineering jobs is only 20,000 jobs/year. If we take out 2020, when jobs plummeted, the average growth from 2011 to 2022 was 30,000 heavy engineering jobs per year. Keep in mind, highway is only 30% (6,000 to 9,000) of those averages. This indicates it will be very difficult to support spending growth of this magnitude. While the starts projections and resulting spending forecast indicate rapid growth, this market sector has never experienced spending or jobs growth this fast and it is likely that growth will be slower than indicated.

Some of this added work will be absorbed into the existing workforce, backfilling a large deficit in business volume. See this short post Construction Spending – Volume – Jobs Since the Pandemic, nonbuilding construction volume (spending minus inflation) is down 20%, but nonbuilding 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. Total all construction business volume in that period is down 10% while jobs are up 1.5%.

Aside from backfilling volume of work, this shows a shortfall of workers that would likely be needed to support the increased workload. The labor force is insufficient to accommodate that large an annual increase in spending. This could result in one or more of these outcomes: either the workforce must somehow increase faster, or the project spending could slow and duration would get extended, which is more likely.

Jobs shortfall to support 2022-2026 spending identifies unsupported need. If jobs cannot be filled, annual spending will be lower and construction timeline would get extended.

Currently, national construction unemployment rate is near or under 4%. That is an extremely tight jobs market, not an easy growth situation. Typically, when unemployment is in the 6% to 8% range there are workers on the sidelines ready to go right back to work. Unemployment seldom falls below 5%. The current jobs situation and unemployment rate seems to indicate there are few workers ready and available to support an immediate increased workload. This adds to the difficulty of expanding the workforce at a rapid rate.

In this analysis, the potential rate of jobs growth and the current unemployment rate both suggest that the projected rate of spending growth would not be supported. A slower rate of spending leads back to reducing starts.

See Also Burning Questions – Recession, Labor, Infrastructure

Construction Inflation 2023

Construction Inflation

PPI Inputs and Final Demand updated 5-19-23 See Tables

Usually construction budgets are prepared from known “current” costs. If a budget is being developed for a project whose midpoint of construction costs is two years in the future, you must carry in your budget an appropriate inflation factor to represent the expected cost of the building at that time. Why the midpoint? Because half the project cost occurs prior to that point and half occurs later than that. The balance point for spending is 50-60% into the schedule. Construction inflation should always be calculated from current cost to midpoint of construction, or in the case of converting an older actual cost to a future budget, from midpoint to midpoint.

Any time a construction project is delayed or put on hold to start at some future date, construction cost inflation must be calculated and added to the previous budget to account for the unanticipated cost increase due to the delay. Of utmost importance is using appropriate cost indices and forecasting future cost growth to account for the difference in original budget and revised budget.

The level of construction activity has a direct influence on labor and material demand and margins and therefore on construction inflation.

  • Long-term construction cost inflation is normally about double consumer price index (CPI).
  • Although inflation is affected by labor and material costs, a large part of the change in inflation is due to change in contractors/supplier margins.
  • When construction volume increases or decreases rapidly, margins change rapidly.

When construction is very actively growing, total construction costs typically increase more rapidly than the net cost of labor and materials. In active markets, overhead and profit margins increase in response to increased demand. These costs are captured only in Selling Price, or final cost indices.

General construction cost indices and Input price indices that don’t track whole building final cost do not capture the full cost of inflation on construction projects.

Consumer Price Index (CPI), tracks changes in the prices paid by consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. This index in not related at all to construction and should not be used to adjust construction pricing.

Producer Price Index (PPI) for Construction Inputs is an example of a commonly referenced construction cost index that does not represent whole building costs. The PPI tracks material cost inputs at the producer level, not prices or bids at the as-built level.

Engineering News Record Building Cost Index (ENRBCI) and RSMeans Cost Index are examples of commonly used indices that DO NOT represent whole building costs yet are widely used to adjust project costs. Neither includes contractor margins.

It should be noted, there are far fewer available resources for residential inflation than for nonresidential inflation.

One of the best predictors of construction inflation is the level of activity in an area. When the activity level is low, contractors are all competing for a smaller amount of work and therefore they may reduce bids. When activity is high, there is a greater opportunity to bid on more work and bids can be higher. The level of activity has a direct impact on inflation.

To properly adjust the cost of construction over time you must use actual final cost indices, otherwise known as selling price indices.

Selling Price is whole building actual final cost. Selling price indices track the final cost of construction, which includes, in addition to costs of labor and materials and sales/use taxes, general contractor and sub-contractor margins or overhead and profit.

Refer to National Inflation Indices for comparison to several national selling price indices or various Input indices. National reference indices are useful for comparison. Few firms project index values out past the current year, therefore all future projections in these tables are by Construction Analytics.

1-18-23  Construction Analytics PPI Tables and Building Cost Index

Construction Inputs to Nonresidential Buildings dropped for five of of last six months, now down 5.2% since June, but still up 7.2% since last December. However, the average index for 2022, when compared to the average for 2021, is up 15.7%.

The average growth for the year accounts for all the peaks and valleys within each year and is the value carried forward into the index tables and charts. A glaring example of the difference between Dec/Dec tracking, or year over year, and annual average tracking, is Steel Mill Products which is down 28.7% Dec22/Dec21, but the annual average for 2022 is still up 9.0% from the average 2021. In fact, the last three years show Dec/Dec combined inflation is +71%, but the annual averages for the last three years show total inflation growth of 87%. Annual averages should be used to report inflation.

Residential inputs are down seven of the last eight months, down 7.1% since April, but still up 7.1% since last December. The average for 2022, when compared to the average for 2021, is up 12.7%.

Several major cost components have been on decline the last few months: Lumber/Plywood, Steel Mill Products, Fabricated Steel, Steel Pipe and Tube, Aluminum and Diesel Fuel. Of the 15 items tracked here, 10 declined in the last quarter. Concrete is the only product that has not posted any monthly decline in 2022. Costs are still high, but are moving in the right direction after 1st quarter 2022 costs that averaged +7% (28%annual) to +8%. Historically, most cost increases are posted in the 1st quarter and the least in the 4th quarter.

If inputs costs remain where they are right now as we start the year, input costs for 2023 will finish the year at -2% Nonres and -4% Residential. If we were to post small but steady cost increases of 0.25%/mo for the rest of the year, we would end with both Res and Nonres input costs up 4% for the year.

4-14-23 PPI Inputs slowed considerably since last year.

PPI Inputs to Construction March 2023—Nonres down 0.1% in Mar, down 6 of last 12mo, -1%over 12mo. Rsdn down 0.3% in Mar, down 9 of last 12mo, -7.5% over 12mo.

Qtrly change last 5 qtrs Nonres 9.7, 3.0, -3.2, -2.5, 1.6 Rsdn 15.2, -1.4, -5.0, -2.3, 1.0

Historically, the 1st or 2nd qtr would post the highest gains for the year. Here’s 1st and 2nd qtr for 2021, 2022, 2023

Nonres 7.1% & 8.9, 9.7 & 3.0, 1.6 & … Rsdn 8.1 & 12.6, 15.2 & -1.4, 1.0 & …

Last 12 months down -1.0% for Nonres and -7.5% for Rsdn. 1st qtr 2023 1.6 and 1.0, instead of (2022) 9.7 and 15.2% and (2021) 7.1 and 8.1%

Still early, but 12mo, 6mo and 3mo PPI signs are pointing down or at least low increases for construction inputs in 2023

Be careful when referencing the 2023YTD. YTD is the growth so far this year. That is growth AFTER December. That does not represent the growth from the avg 2022. As an example, using Inputs to Nonres, the average growth in 2022 was 15.7%. That could be expressed as a starting Jan index of 100, a Jul 1 index of 115.7 and an ending Dec index of 131.4. The average of all 12 months in 2022 = 115.7, the average being at midyear. Well by averages the midyear index would be 115.7. The 2023YTD index is 2.6% since December (131.4) not 2.6% added to 115.7. This really highlights why it is much better to track the index than to report the percentage.

The last column, YTD vs 2022avg, gives an indication of 2023 avg if current YTD costs remain constant for the remainder of the year.


Final Demand PPI, or Selling Price, represents contractors bid price to client. Includes labor, material, equipment, overhead and profit. Labor includes change in wages and productivity. Every three months (Jan, Apr, Jul, Oct) BLS performs an update survey to correct these Final Demand indices. For the past six quarterly updates, about 80% to 90% of the change in the index was posted in the update month. Therefore, Final Demand indices should not be referenced monthly. These are quarterly indices. January is an update month. PPI Final Demand for Jan index is basically the correction for Nov and Dec. The index should NOT be compared mo/mo. Compare qtr/qtr, but make sure to use the correct update month with two other months, (Jan +Dec+Nov)/(Oct+Sep+Aug) The table shows the slowing progression from a 20% annual rate of gain for all of 2022 (avg nonres bldgs), to 2% the last two qtrs to only 0.1% the last qtr. Slowing is good. The last column, YTD vs 2022avg, gives an indication of 2023 avg if current YTD costs remain constant for the remainder of the year.


UPDATED 5-19-23 PPI Final Demand Inputs show Q3 and Q4 2022 trend lower each quarter but an increase in Q1 2023. Final Demand shows most indices trending lower since Q2 2022.

The final demand PPI index for 2022 nonresidential buildings is substantially higher than Construction Analytics nonresidential buildings cost index reported in the index tables. These PPI values are but one of the references used to develop construction analytics building cost index.

Current and predicted Inflation rates updated 1-18-23:

  • 2020 Rsdn Inflation  4.5%, Nonres Bldgs 2.6%, Non-bldg Infra Avg -0.3%
  • 2021 Rsdn Inflation 13.9%, Nonres Bldgs 7.4%, Non-bldg Infra Avg 7.9%
  • 2022 Rsdn Inflation 16.1%,Nonres Bldgs 12.9%, Non-bldg Infra Avg 13.8%
  • 2023 Rsdn Inflation 1.9%, Nonres Bldgs 4.0%, Non-bldg Infra Avg 4.3%

Current and predicted Inflation updated to Q4’22  3-3-23

  • 2020 Rsdn Inflation  4.5%, Nonres Bldgs 2.4%, Nonbldg Infra -0.3%
  • 2021 Rsdn Inflation 14.0%, Nonres Bldgs 8.0%, Nonbldg Infra 7.9%
  • 2022 Rsdn Inflation 15.8%, Nonres Bldgs 12.2%, Nonbldg Infra 13.8%
  • 2023 Rsdn Inflation 2.2%, Nonres Bldgs 4.8%, Nonbldg Infra 4.7%

Construction Analytics Building Cost Index and other industry references

Tables and Plots updated to Q4’22  2-6-23:

In the table above, dividing the current year by the previous year will give the current year inflation rate. All indices are the average rate for the year.

Also in the tables above, all reference indices data is gathered, then all are normalized to a common base, 2019 = 100. This allows to see how different indices compare.

How to use an index: Indexes are used to adjust costs over time for the effects of inflation. An index already compounds annual percent to prevent the error of adding annual percents. To move cost from some point in time to some other point in time, divide Index for year you want to move to by Index for year you want to move cost from, TO/FROM. Costs should be moved from/to midpoint of construction, the centroid of project cost. Indices posted here are at middle of year and can be interpolated between to get any other point in time.

Tables and Plots updated to Q4’22  2-6-23:

Tables and Plots updated to Q4’22  2-6-23:

Tables and Plots updated to Q4’22  2-6-23:

4-21-23 This table and plot is an extension of the tables and plots above. Data is as of Q4 2022, but the table covers from 1967 to 2000. Data is pretty sparse.

Previous year Construction Inflation 2022 – updated 12-10-22
Previous year PPI Tables 2022 Producer Price Index to NOV’22
Links to Data Sources Construction Inflation >>> Links
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