In early 2007, residential construction volume had already dropped 20% and total construction volume was down 10%, (the annual averages would not show this dramatic drop but a monthly plot would), yet construction job openings and labor turnover survey (JOLTS) was peaking at a 6 year high. From Jan 2007 to Jan 2008, construction had already lost 250,000 jobs. All of that was in residential construction. At the time, nonresidential construction was still growing.
Nonresidential buildings volume would peak in late 2008 and non-building infrastructure peaked in early 2009. By that time, in Q1 2009, residential volume was down 60%. Even though nonresidential construction was peaking, total construction was down 25%.
In 2008 construction jobs declined by another 500,000, about 90% residential jobs. JOLTS dropped to half of the 2007 peak high. It was over the next year or so that all construction began to decline, jobs would drop in all sectors and JOLTS would plummet to an all-time low.
The point is this: The construction recession began with the decline of residential construction in 2006-2007, at a time when JOLTS was at a 6-year high. Jobs declines lagged the decline in real construction volume (the annual average plot shows this well).
It is remarkable how residential construction volume from the Q1 2006 peak to Q1 2007 had dropped 20% but residential jobs increased by 6%. JOLTS was peaking at a 6 year high. Although total construction jobs increased in 2006, jobs started to decline in the 2nd half 2006 and would drop 200,000 in 2007. JOLTS continued to show job openings increasing from mid-2006 to mid-2007. Neither jobs growth nor JOLTS reflected what was occurring in real construction volume and certainly did not give any leading indication of what was on the horizon.
Now fast forward to 2019. Construction spending growth for the previous two years, 2017 + 2018, increased 4.5% + 5.0%. But inflation during this period was 4.4% + 4.8%. Real construction volume for the last two years increased less than 1%. But jobs increased by nearly 8% and JOLTS more than doubled from 2016 to the end of 2018.
This is a real head-scratcher. Volume has not increased for two years, yet jobs are up 8% and the indicator for job openings is increasing. This is not at all what the data should be showing.
Just as the data showed in 2007, the data at the start of 2019 shows that we are top-heavy construction jobs that are not supported by real growth in construction volume.
Construction volume, (spending inflation adjusted to constant $ volume) hit a 3-year low in Dec-Jan.
The 12 month trailing total of new construction jobs has been declining for 8 months.
With construction spending in 2019 predicted up only 2%, and forecasting 4.5% construction inflation for 2019, real volume for 2019 will be down 2.5%. Jobs thru April are already up 1.2% year-to-date.
We are in the third year of no increase in construction volume. But jobs have continued to grow and JOLTS is at an all-time high. These data sets should not occur at the same time. But this is exactly what occurred prior to the great recession after which we experienced a devastating drop in jobs. However, compared to the construction volume measured by inflation adjusted spending, both the changes in jobs and the JOLTS indicator of job openings seemed to lag real activity by about a year.
Even if we do not experience a construction recession similar to 2008-2011, the current situation may be signaling that we could experience a jobs correction with the slightest downturn. If a jobs correction does not materialize then we are headed for a period in which we will have the highest ratio of jobs per volume of work put-in-place measured in the last 50 years.
See also these articles:
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Construction Spending for April came in at $1.299 trillion. Current spending has been stable for the last three months but at a level 1% to 2% lower than this time last year. That should change to positive growth as the year goes on because the 2nd half of 2018 was declining while the 2nd half of 2019 should increase.
Residential spending YTD is down 8%
Nonresidential Buildings spending ytd increased 3.5%
Non-building Infrastructure spending ytd is up 6%
In 2017 construction spending increased 4.5%, but inflation was 4.4%. Real construction volume increased only 0.1%. In 2017, construction jobs increased 3.4%.
In 2018 with 4.8% inflation and only 5% spending growth, real construction volume increased only 0.2%. In 2018, jobs increased 4%.
Considering 4.5% construction inflation for 2019 with spending predicted up only 2%, real volume will be down 2.5% from last year. Jobs thru April are up 1.2%.
Revenue growth looks like 5%/year but it’s all or nearly all inflation. We’ve grown top heavy jobs by 10% in less than three years.
Now well into the third year of jobs growth exceeding growth in work volume, unsupported jobs growth will eventually lead to downward correction in construction jobs. Maybe in 2019.
6-7-19 BLS released Construction Jobs for May, up 4,000. But March and April were both revised down by a total of 13,000. Only 26,000 jobs have been added in the last 4 months. That’s the slowest jobs growth for any four months since 2012. In 2018 jobs increased by an average 26,000/month.
From Jan 2017 to April 2019, jobs growth exceeded construction volume by 10%. The last four months is the slowest 4mo in seven years.
Is this the beginning of a jobs slowdown? Are greater job losses on horizon? The last two years look remarkably similar to 2005-2007 when jobs were still increasing rapidly but already residential construction was well into a downturn.
Residential construction spending saar for April 2019 = $506bil. April 2018 was $570bil. Down 9%. Monthly spending is down 10 of last 12 months. Current $ spending is indicating a 3% drop for 2019. After inflation, that would indicate an 8% drop in real 2019 residential volume.
Residential spending for Q1 2019 is 11% below Q2 2018. The decline is about half in single family and half in renovations. Multi-family spending is up 8% ytd (but accounts for only 12%-13% of all residential spending). Total spending for the first four months of 2019 is the lowest residential spending saar for any 4mo in more than two years.
I’ve posted reasons why I expect upward revisions to residential spending, but I question if revisions can offset the current decline from 2018. With a deficit near 10%, it now looks like residential construction spending will NOT post any gains in 2019 and could finish the 2nd consecutive year of zero growth or real volume decline.
In real volume, after adjusting for inflation, residential construction through April is down 13% year over year. We haven’t posted a volume decline like that since 2009. Perhaps revisions will recover half that decline, but not all. Contrary to the decline in real volume, in the last year residential construction jobs are UP 3.5%.
Educational spending will finish 2019 much stronger than current spending but the yearly totals will only make slight gains over 2018. There was an uneven distribution of spending curve peaks contributing less in the 2nd half of 2018 that is now behind us. 2019 spending is supported by a steady stream of strong starts that began in late 2017 and extended into summer 2018. Jun-Jul-Aug 2018 starts posted the best 3mo total starts ever and peak spending from those starts occurs from April 2019 to Jan 2020. I’m predicting 3% growth in 2019 and 9% in 2020. Some of the expected stronger spending in 2020 could move into 2019. Current spending is up 6.6% ytd over 2018. Most spending in 2020 comes from projects that start in the 1st half of 2019. So far in 2019 starts are up 15% ytd over 2018.
Commercial spending is currently down 4.5% ytd. It will move slightly lower before it improves, finishing the year down 2%. Both store and warehouse starts dropped in 2018. 2020 may not get more than a 2% gain in spending. Commercial starts are seeing strong gains from distribution centers (warehouses, which are in commercial spending). Since 2015 the 10% decline in retail stores is being hidden by the 50% increase in warehouses, which are at an all-time high. Stores are down 10% from the peak in 2016. Warehouses are down 5% in 2018 but increased 500% from 2010 to 2017.
Manufacturing spending, up 10% year-to-date, currently appears stronger than it is expected to finish the year. Backlog is still very strong, but a drop in peak spending from the schedule of cash flows will lead to a period of moderate spending declines from March through September. After that, manufacturing spending increases steadily through the end of 2020. Initial forecast was for 2% growth in 2019. Current expectations are that manufacturing will finish the year up 6%. 2020 will be an extremely strong growth year, spending potentially increasing 20%+.
Office spending, currently up 9% ytd, similar to manufacturing, could post several months of moderate declines from June to November, but then rebound with a steady stream of increases through 2020. In fact, my forecast shows office spending will remain flat or post a slight declines in 6 out of the next 7 months and finishes the year near the same monthly rate of spending as we are at now. Office spending is expected to finish 2019 up 6% or less. Initial forecast was up 6% for 2019. New starts in 2018 were up 11% to a new high, but much of the peak spending, from over-sized long-duration projects, will benefit 2020 when I expect to see spending growth of 7%.
Healthcare starts dropped back a bit in 2018, finishing 9% down. This slowed spending to remain flat for 2018 and 2019. Spending ytd is up only 1% from 2018. Backlog increased 11% for 2017 and 8% for 2018, but with the slowdown in new starts in 2018, 2019 backlog will be down slightly. New starts need to increase in 2019 to see growth in 2020 starting backlog.
Healthcare construction spending for 2018 is forecast to finish at $42 billion, an increase of only 0.2% over 2017. Considering the recent range between 3.5%-5% inflation, healthcare real volume has declined every year since 2012 with exception of 2017 which gained only 0.3%. It will decline again in 2019 with a forecast 0.6% gain in spending, but with a 4.5% rate of inflation. Dependent on how starts materialize in 2019, 2020 could realize the 1st big spending and real volume increase in 8 years.
Transportation starts have two main parts, Terminals and Rail. Some analysts include transportation in nonresidential buildings. That does not consider the following: airports include not only land-side terminals but also air-side runway work; rail includes platforms and all railway right of way work, which includes massive civil engineering structures. About half of all transportation spending is rail work. Construction Analytics follows U S Census construction spending reports which include all terminals and rail in Transportation.
Terminals and rail starts reached record highs in 2017 and record backlog in 2019. 2019 starting backlog is four times what it was in 2015.
However, much of that backlog is very long duration project spending that will occur in future years. Some of the project starts in 2016 and 2017 have an eight-year duration. From Oct’16 through Oct’18 there were sixteen $billion+ new project starts and seven $500million+ new starts. Some projects started in this period have peak spending occurring in 2020 and 2021.
Transportation spending is up 8% ytd but could post several slow months in mid-2019. Spending in 2018 is forecast to finish up more than 19%. Spending for 2019 is expected to finish up only 4% but then increase at least into mid-2021. 2020 and 2021 could see increases in spending of 15% to 20%/year.
Highway/Street/Bridge starts hit an all-time high in 2018. Current 2019 progress shows new starts leveling off. Starting backlog increased 50% in the last 4 years leading into 2019. A lot of this is long duration backlog that will provide for large increases in spending in from 2019 to 2021.
Highway construction spending ytd is up 17%. Spending is forecast to increase 16% in 2019 and 10% in 2020. 2021 may see an increase of 10% in spending.
Environmental Public Works (Sewage, Water supply and Conservation) new starts all declined from 2014 through 2017. Then all showed gains in 2018 and the forecast is more gains in 2019. All these projects are public spending and saw no real gains in spending from 2010 through 2017. Spending ytd 2019 is up 16% to 20% for this group. I’m predicting 2019 spending will finish up 22% and 2020 spending is now forecast to increase 17%.
The goal has always been to share information. It takes readers to make that happen. Well, here’s what you, my readers, have done for this blog.
2016 was a start-up year. The blog had only 7,000 visitors for the year that produced 14,000 views. It wasn’t until the blog became established that more visitors began to view more articles. The number of visitors and article views grew exponentially after that.
Total visitors in 2017 averaged about 2000/month, but in 2018 grew from 2000/month at the beginning of the year to 5000/month by year end. So far in 2019 though mid-May this blog has had over 30,000 visitors.
In 2019 so far, this blog gets on average about 1500 visitors/week that view about 3000 articles/week.
Total views of all articles in 2017 averaged 5000/mo, in 2018 – 8000/mo and in 2019 ytd – 12000/mo. By the end of June 2019 articles on this blog will have received 250,000 views.
By far the most popular articles are those on the subject of construction inflation and the economic forecast. In fact, the inflation articles, simply through the number of hits from google searches, have garnered a top page link from google search for construction inflation.
In January 2019, more than 8,000 visitors generated 17,000 views. The 2019 Economic Forecast Summary had more than 3,000 views and the Inflation Index Tables more than 4,000 views. This blog now gets more visitors and more views per month than I got per year when when I worked for and my reports were published and distributed by a major national construction firm. I believe that success is supported by quality content and web presence.
Inflation Tracking and Forecast 2017 – 50 views a day, 2019 – 150/day
Starts/Backlog/Spending Forecast 2017 – 10 views a day, 2019 – 50/day
Thanks to all of you who make writing worth the effort. Please keep reading. edz
When assessing or tracking the pricing affect of tariffs on construction materials, you need to understand that the Producer Price Index (PPI) does not include imports (imports are not produced in the US) or tariffs. See items 4 and 24 in the FAQ provided by the Bureau of Labor Statistics. Construction PPI changes reflect pricing decisions domestic producers make on domestic products in reaction to tariffs on imported products. Tariffs have big impact on domestic prices.
The price change we see in the PPI for construction materials reflects the domestic material prices of ALL other domestically produced materials used in the industry. While tariffs may affect only 10% of products used in the industry the PPI shows us the domestic producers reaction applied to the other 90%.
For example: Steel tariffs of +25% applied only on imported steel, affected only 30% (the imported share) of steel used in US. However the PPI shows us that all other domestically produced steel in the US and used in construction increased in price between 12% and 22% in 2018. Prices of domestic steel have receded somewhat, now ranging from +7% to +13%. But the point is that tariffs caused a price increase also in domestic steel.
The cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased 18% in 2018 after the steel tariffs were imposed. That is domestic producers pricing response in reaction to tariffs. Tariffs impacted pricing decisions on all domestically produced products, not just the imported products. The increase has since receded but is still up 10%. Consumers pay the price.
For the two years 2017-2018, the Total All Construction posted Revenue +9.8%, Volume after adjusting for inflation +0.3%, and total Jobs +7.6%.
Breaking out these numbers by sector,
Nonresidential Buildings — Revenue +5.9% Volume -3.1% Jobs +8.2%
Non-building Civil — Revenue +3.8% Volume -3.6% Jobs +10.0%
Residential Buildings — Revenue +17.1% Volume +5.6% Jobs +8.2%
Similar to a pattern that occurred in the pre-recession spending boom, jobs growth is more closely matched to revenue growth than it is to real volume growth. Overall, for the last two years, construction jobs growth far outpaces construction volume growth.
In the nonresidential sectors, while revenue was positive, after spending is adjusted for inflation, real volume was down 3% to 4%. Yet jobs increased 8% to 10%.
Residential spending (revenue) was up 17%, but after inflation real volume was up only 5.6%. Residential jobs increased 8%. If we look at residential since 2011 we see persistent growth in volume greater than jobs. But all residential jobs are not captured.
When we look at Nonresidential Buildings we see jobs growth far exceeds volume growth. However, there are some jobs related to residential work that are captured in the nonresidential jobs number, any work on high-rise residential buildings performed by contractors whose company is generally classified as nonresidential, particularly structural, and it is impossible to break out those jobs.
It is difficult to square the consistent jobs growth in excess of volume growth with the long ongoing narrative of jobs shortages. I suppose it could be argued that it is a “skilled” jobs shortage, a lack of workers with the needed experience. But we would have to look back to the period 2000-2004 to find a time when jobs growth was balanced with volume growth. There are several other articles on this blog documenting the variance back to 2000.
Here’s a link to a twitter thread on the May release of the April Jobs report showing the differences for the last 12 months.
A brief explanation added to answer the question of the difference between Spending (or Revenue) and Volume.
If your company revenues are increasing at a rate of 7% per year at a time when construction inflation is 5%, your business volume is increasing only 2% per year. If you hire support staff to support 7% growth in revenues, you would be grossly over-staffed. Inflation adds nothing to business volume. If you do not factor inflation into your growth projections, you are not forecasting growth properly. Spending is revenue. Volume is spending (revenue) minus inflation.
If a contractor is building houses that last year cost $250,000 to build a 2500sf house, but this year it cost $275,000 to build the same house on the lot next door, the volume did not change. Both sets of dollars represent the cost of the same house, but the most recent house cost 10% more due to inflation. It does not take any more workers to build the house this year than it did last year. Inflation changed the dollars of revenue that changed hands, but inflation added nothing to business volume.
Volume is measuring the amount of work completed, not the cost of the work completed. This blog post compares the number of jobs added to the amount of work added. Adjusting for inflation removes the variable of cost.
Census released March spending today and from my point of view the numbers are showing a surprise downward shift. Nonresidential Buildings and Non-building Infrastructure both showed upward movement as expected but Residential spending posted the eight decline in nine months.
Construction Spending for March posted at $1.282 trillion, 1.5% below (my) expectations. Nonresidential increased BUT Residential is down 2% from Feb. Jan was revised down 4.6% and Feb revised down 5.6%.
Residential spending is now 8% below March 2018. The decline is about half in single family and half in renovations. Multi-family spending is up 11% year/year.
The only monthly gain in residential spending since July 2018 is in Dec, but in the nine months Jul to Mar spending is down 10%. Q1 2019 spending has dropped back to a level of Q1 2017. This is pushing my 2019 residential spending forecast into a decline, 1st decline since 2010.
I’ve posted reasons why I expect upward revisions to residential spending, but I question if revisions can turn around the current 10% decline from last July. It now looks like residential construction spending will NOT post any gains in 2019. That’s more serious than it first appears, since spending needs to increase at least 4% to 5% just to counter inflation. In other words, if residential spending in 2019 posts a 2% decline, real residential volume after inflation would decline by 6% or 7%.
In real volume, after adjusting for inflation, residential construction spending, as of March, is down 12.5% year over year. That hasn’t happened since 2009. Perhaps revisions will recover half that decline, but not all. Contrary to the decline in real volume, in the last year residential construction jobs are UP 3.5%.
Manufacturing currently appears stronger than it is expected to finish the year. Up 6% year-to-date and up 10% from last March, we could see those gains fall off over the next 6 months. Backlog is still very strong, but the schedule of cash flows from old jobs will lead to several months of moderate declines. Initial forecast was for 2% growth in 2019. Current expectations are that manufacturing will finish the year up between 2% to 4%. 2020 will be an extremely strong growth year.
Office spending, similar to manufacturing, could post several months of moderate declines. In fact, my forecast shows office spending declines in 6 out of the next 7 months and finishes the year at the same monthly rate of spending as we are at now. Office is up 8.4% ytd but I expect the year to finish up 4% or less. Initial forecast was up 6% for 2019. New starts in 2018 were up 11% but most of that spending will benefit 2020 when I expect to see growth of 6%.
Commercial spending is currently down 4.8% ytd and 7% lower than last March. It will move slightly lower before it improves, finishing the year down only 1% to 2%. 2020 may not get more than a 1% gain.
Educational spending will finish 2019 much stronger than current spending but the year will only make slight gains over 2018. Current spending is up 5.5% ytd over 2018 but that will taper off. However, the strong activity in the 2nd half of 2019 will lead to substantial growth in 2020.
More notes will be added in the coming days as I review all other markets in the spending report.
I’ve read a few news articles that proclaimed charitable donations to Notre Dame may not be enough to cover the cost to rebuild the damaged cathedral roof. One article on Bloomberg news stated, “The cost might well run as high as 8 billion euros”.
I think it’s time some news sources engage with a professional architect, engineer and cost estimator before writing these articles. 8 billion Euros is enough to spend an astronomical amount to repair the damage!
One World Trade Center is the most expensive building built in the U.S. It cost $4 billion. It measures 3.5 million square feet (SqFt).
Some sources are saying the Notre Dame cathedral roof repair may cost more than $8 billion. The Notre Dame roof, as closely as I can determine from online data of the building, measures about 50,000 SqFt.
Just think about that.
I’m stretching my thought process to come up with a rough estimate that would cost as high as $250 million. Frankly, my rough estimate is quite a bit lower than that, and that would still be far more costly per SqFt than the most expensive building in the U.S.
I haven’t yet seen an architect / engineer estimate of the total area of the roof. I traded some emails with an architect who thought total area was 25,000 SqFt. I searched online and come up with potential area of roof at 50,000 SqFt. Here I’m using 50,000 SqFt.
I have not seen any other realistic cost estimates. But, the most expensive roof covering and roof structure I’ve ever estimated was less than $100/SqFt (in 2019 dollars).
My order of magnitude estimate (OME) (very general), for a unique, complex structure and premium roof covering could be $500/SqFt. Portions of this roof need to be quite ornate and also the estimate must include a ceiling structure. For a historical and rare roof plus inside work let’s double that estimate to $1000/SqFt. That’s 10x the cost of the most expensive roof I’ve ever estimated / built.
$1 billion would provide for $20,000/SqFt.
$8 billion would provide for $160,000/SqFt!
Even if my OME is 10x too low and I make a 10x adjustment, cost would then be $10,000/SqFt for a total cost = $500 million. That’s 100x more expensive than the most costly roof I’ve ever estimated. Frankly, I can’t come up with any conceivable scenario where it could cost that much.
footnote: 8 billion Euros is currently about $9 billion US dollars
PUBLIC WORK AND INFRASTRUCTURE SPENDING
Most public work is non-building infrastructure, or public works type projects, but some public work is nonresidential buildings. In 2018, of $301 billion in public work, $177 billion (59%) is non-building infrastructure, $118 billion (39%) is nonresidential buildings, $6 billion is residential. The public subset of work in the last 25 years has grown by $20 billion/year only twice, during the construction boom of 2006-2007.
Excluding the worst recession years, the average annual growth of all publicly funded work since 2001 is $8 billion/year. In the four best construction boom years growth averaged $20 billion/year.
The two largest markets contributing to public spending are Highway/Bridge and Educational, together accounting for nearly 60% of all public construction spending. At #3, Transportation is only about 12% of public spending. Sewage/Waste Water and Water Supply add up to another 12% of public work. All other markets combined, none more than 4% of total public work, account for only 15% of public spending.
Non-Building Infrastructure sector, at a total of $313 billion in 2018, is less than 25% of all construction spending, mostly supported by the Power market. Power accounts for 33% of all non-bldg infrastructure spending. Highway represents 30% and Transportation about 15%. However, Power is 80% private; Highway is 100% public; Transportation 70% public.
60% of non-building infrastructure spending is publicly funded. Highway is a little more than half of all publicly funded non-bldg infrastructure work. The public non-bldg subset of work in the last 25 years has grown by $10 billion/year or more three times, 2006, 2007 and 2018. In 2006-2007, Highway accounted for most of that growth. In 2018, Transportation accounted for half the growth.
Excluding the worst recession years, the average annual growth of publicly funded non-bldg infrastructure work since 2001 is $5 billion/year. In the four best construction boom years growth averaged $12 billion/year.
Nonresidential Building sector, at a total of $434 billion in 2018, is 35% of all construction spending, mostly supported by the Educational and Commercial markets. Educational accounts for 22% of all nonresidential buildings spending, commercial 20%. However, Educational is 80% public, Commercial is only 4% public.
Other nonresidential buildings that are publicly funded are: Public Safety – 100% public; Amusement/Recreation Facilities (i.e.’ Convention Centers, Stadiums) – 45% public; Healthcare – 20% public; Office – 13% public. None are more than 4% of total public spending.
Less than 30% of nonresidential buildings spending is publicly funded. Educational is 60% of all publicly funded nonresidential building. The public nonresidential building subset of work in the last 25 years has grown by $10 billion/year twice, in 2007 and 2008. Both times, Educational accounted for 75% of that growth.
Excluding the worst recession years, the average annual growth of publicly funded nonresidential building since 2001 is $4 billion/year. In the four best construction boom years growth averaged $8 billion/year.
Residential is 40% of all construction spending but only 2% of public spending.
Average post-recession growth in public infrastructure + public institutional jobs is about 40,000 jobs per yr. Maximum growth in a year was 60,000 jobs. Growth of $10 billion in spending in a year supports about 40,000 new jobs.
All public work in the last 25 years has grown by $20 billion/year only twice. The average annual growth of all publicly funded work since 2001 is $8 billion/year. In the four best construction boom years growth averaged $20 billion/year.
Total All Public Infrastructure construction, including non-building public works and nonresidential public buildings, already has 2019 and 2020 growth projections at historic capacity of +$20 to +$30 billion/year. Historically, even in the construction boom years of 2005-2008, we have never exceeded that growth volume, especially by another $10-$20 billion/year, nor added an additional 40,000-80,000 jobs per year above the average 40,000 or the maximum 60,000 jobs in a year.
Any government funding intended to increase public infrastructure construction would most likely be limited by industry growth rates to at best no more than $10-$20 billion a year.
The above Marketwatch article links to a twitter thread I posted that summarizes Infrastructure limitations in a nutshell.
See also these articles for much more analysis on Infrastructure
New Construction Starts data represents a share or a portion of all construction, on average about 60% of all construction. Dodge Data starts totaled approximately $740 billion and $785 billion for 2016 and 2017. Total construction spending was $1,246 billion in 2017 and $1,300 billion in 2018. What happens if within individual markets the share of information collected in the starts data is not constant from year to year?
Office starts increased by an average of 20%/year from 2012 to 2015. Spending increased by 20%/year from 2013 to 2016. But then in 2016, starts increased 31% and spending in 2017 turned to a 1% decline. 2018 spending gained only 10%. That was unusual and unexpected since 2016 starts indicated a very large increase in spending the following year.
Growth in starts can signify one of two things; future growth in spending, or growth in capturing a larger share of the market. To find share of market captured, starts need to be compared to the cash flow over the time for which those starts will be spent. Typical cash flows predict 20% gets spent in the year started, 50% in the following year and 30% in the 3rd year.
For the period 2011-2015, office starts compared to the value of cash flow over the next 3 years stayed within a range of 45% to 50% of total spent. For 2016 starts, the share of starts compared to cash flow of those starts jumped to 60%. In other words, the growth in spending in 2017 and 2018 did not correspond to the huge growth in starts in 2016. The 31% growth in 2016 starts did not produce future growth in spending but may have mostly represented growth in capturing a larger share of the market.
Analysis shows similar activity in Transportation starts versus spending and to a lesser extent is several other markets.
Construction Starts Data can vary year to year as a share of total market activity. Commonly used to predict future spending, the share of market captured in the starts data, if not consistent, can skew any use to forecast spending. Starts share of market must be analyzed before starts can be used to forecast future spending.