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Construction Inflation

 

LINK to most recent articles on inflation 2019

11-17-2015

( Also See 1-31-2016 comments and chart on inflation )

Over the last 24 months work volume has increased and short-term construction inflation has increased to more than double consumer inflation. It appears construction inflation is already advancing faster than and well ahead of consumer inflation, which supports that consumer inflation is not an indication of movements or magnitude of construction inflation.

It is always important to carry the proper value for cost inflation. Whether adjusting the cost of a recently built project to predict what it might cost to build a similar project in the near future or answering a client question “What will it cost if I delay my project start by one year?”, whether you carry the proper value for inflation (which can differ every year) can make or break your estimate.

  • Long term construction cost inflation is normally about double consumer price inflation (CPI).
  • Since 1993 but taking out 2 years of recession (-8%), the 20-year average inflation is 4.2%.
  • Average long term (30 years) construction cost inflation is 3.5% even with any/all recession years included.
  • In times of rapid construction spending growth, construction inflation averages about 8%.
  • Although inflation is affected by labor and material costs, a large part of the change in inflation is due to change in contractors/suppliers margins.
  • When construction volume increases rapidly, margins increase rapidly.
  • Construction inflation can be very different from one major sector to the other and can vary from one market to another. It can even vary considerably from one material to another.

In the 5 years of rapid growth in spending for nonresidential buildings from 2004 through 2008, nonresidential buildings cost inflation totaled 39%, or averaged ~8% per year.

In the 6 years of spending during the residential construction boom from 2000 through 2005, residential building cost inflation totaled 47%, or averaged ~8% per year.

Neither the producer price index (PPI) for construction inputs nor the CPI are good indicators of total construction cost inflation.

Some construction cost indices include only the cost changes for a market basket of labor and materials and do not include any change for margins. Those indices are not a complete analysis of construction cost inflation.

Construction cost inflation must include all changes related to labor wages, productivity, materials cost, materials availability, equipment and finally contractors margins.  Margins are affected by the volume growth of new work and demand for new buildings. So be sure to verify what is included in any cost index you reference for real construction cost inflation.

For the last three years residential construction inflation has averaged 5.7% and nonresidential buildings inflation has averaged 4.2%. Nonresidential buildings cost inflation has increased for five consecutive years.  Both are likely to increase next year since anticipated volume in both sectors will grow next year.

In my construction spending data set, which goes back to 1993, there were six years with greater than 9% spending growth. By far the largest spending growth years were 2004 and 2005, 11.2% and 11.5%. We are about to repeat that historic level of spending growth. I am predicting 2015 will finish with growth of 11.6% and 2016 will experience 11% growth.

(8-12-16) 2015 finished at 10.6% because 2014 was revised up. Construction spending for 2016 will probably finish closer to 8%.

I expect historic levels of growth in spending will be accompanied by inflation relative to historic high growth periods. Don’t expect long term average inflation in high growth periods.  Don’t be caught short in your construction cost budgets!

Graphic updated 1-8-16

The chart shows the low and high range of various independent nonresidential buildings construction actual cost indices. In 2015, the range of estimates was from 2% to 5%. The actual inflation came in at 4%. The plotted line is my result of where inflation actually ended up. A chart for residential construction would show much different values.

Construction Inflation 2000 - 2017 plot 1-8-16

( Also See 1-31-2016 comments and chart on inflation )

Erratic Pattern Ahead for 2016 Construction Spending. Why?

The good news is 2016 construction spending will be up across the board, although growth will vary between the three major sectors, residential, nonresidential buildings and nonresidential infrastructure. This post is about how we will get there.

This plot shows a three year pattern of spending for nonresidential construction. The seasonally adjusted annual rate is plotted every month and the horizontal bars show the total average spending for each year.

Spend Nonres Bldgs and Infra Patterns

I often include a linear trend line in my plots because it’s good to be reminded of the long term direction and rate of growth rather than the monthly fluctuations.  I’ve removed the trend lines from this plot to make a point. A fairly typical growth year shows spending finishing the year at a higher rate than when we started. The total spending for the year (shown by the horizontal bars) is the sum of the unadjusted monthly values, which is the same as the average of the monthly adjusted rates of spending. The plot above shows spending for buildings totals of $330 billion in 2014, $390 billion in 2015 and $430 billion in 2016.

If spending always occurred evenly we would see a smooth constant slope plot line indicating the rate of growth, sometimes punctuated with minor monthly declines but over the long term up at a constant rate. The plot for buildings shows a pretty constant growth pattern from March 2014 to March 2016. We see a few slight monthly dips and a flat spot in mid-2015, but overall fairly constant growth.

That will all change in 2016.

The plot shows both buildings and infrastructure will experience multi-month declines in 2016.  By midyear both will dip so low that the year over year comparison will drop to near zero percent. Spending on buildings will drop more than 10% from the 1st quarter 2016 high to the midyear low. (edit 11-16. Most recent analysis is showing the nonresidential buildings peak and drop is moved out about 4 to 6 months.  The plot above does not reflect this most recent analysis.) Infrastructure will drop in a similar pattern but not as dramatically.  Both will resume growth and finish the year at or near the yearly high. Together these major sectors make up 60% of total construction spending with residential being the other 40%. The magnitude of these declines will be large enough to drag total construction spending down for the period, but it too will resume growth and finish the year well above where it started.

What causes that pattern?

Spending in any given month is the sum total contributed by all the projects that started and are currently underway. That includes spending from projects that started recently with foundations just coming out of the ground and also projects that started 18 to 24 months ago that are near completion and near ready for occupancy. Spending is affected by the pattern of starts recorded over the previous 24 months. Only if that pattern is even in growth will spending be even in growth.

Let’s make some assumptions for an example that should be easy to understand.

  • All projects take 20 months to build.
  • The construction budget gets spent at a constant rate of 5% per month.

Of course, reality never occurs as simple as that, but it makes for an easy to understand example. With these simple assumptions we know this about spending;

  • Every month includes some spending from all starts over the previous 20 months.
  • New starts in any given month contribute only 1/20th or 5% to total spending that month.
  • Predicted spending 3 months out includes only 15% from new starts, 4 months out 20%, etc.

Now, back to reality.

Nonresidential buildings spending in 2016 includes projects that started all the way back to mid 2014. From April 2014 to April 2015, concentrated mostly in mid to late 2014, there were several instances where monthly starts exceeded the previous month by 50%-60%, then settled back. Those were great months and indicated a huge growth spurt in nonresidential building construction. We see that growth from early 2014 all the way up to a peak in early 2016. Nonresidential buildings spending experienced growth of 9% in 2014 and 19% in 2015, with 9% growth predicted for 2016.

We don’t typically see a seesaw pattern in spending from the starts when all the projects are ongoing at the same time, we see flatter and steeper rates of spending growth. The six biggest months from that period averaged more than 30% higher than the current rate of new starts growth. So we’ve had a pause in the rate of increase for new starts. We see the big affect on the spending pattern when a very large volume of spending from starts 18 or 24 months ago reaches completion and drops out of the current month spending. That is what will happen in 2016.

New 2016 nonresidential buildings starts is not the cause of a 10% dip in spending in 2016. It is the completion of a very large volume of starts from 2014 that will no longer be contributing a large share to monthly spending.  That will work itself out by year end. But for those who do not look at the patterns that contribute to current spending it will create quite a stir.  Three to five months of consistent declines in spending will look like the end of recovery in nonresidential construction.  It is not the end.

Spend ALL 2014-2016

Construction Spending 2015 and 2016

Here’s a peak at expected annual Construction Spending for 2015 and 2016.

Spend Early 2016 Estm Compare

My predictions (GBCo) include the latest actual construction spending data released Nov. 2nd for September spending. This updated projection also includes revised future spending based on Dodge Data & Analytics construction starts released at the DDA Outlook 2016 conference Oct. 30th. My prediction for total spending in 2015, now at $1.075 trillion, hasn’t changed much (up 0.7%) since August. However, for next year my projection has increased from $1.150 to now expecting total spending of $1.190 trillion in 2016. Both projections will be further refined in my winter economic report.

Why are my predicted values so much higher than other estimates?

I put emphasis on using the cash flows from all previously recorded construction starts to predict future construction spending. I’ve talked about and documented in past reports the correlation between these two data sets. For 2015, with only three months left to go, 80% to 90% of all starts that will generate spending in the final three months are already in place.

Very little affect on total 2015 spending will be brought about by new construction starts in the 4th quarter. New starts could crash to a level less than one half of current trends and that would still not affect total spending enough to get below $1.050 trillion for the year. In order to have the final total spending come in less than $1.040 trillion, the rate of spending for each of the next three months would need to drop off to the level of a year ago. That is not what the cash flows are indicating. In fact, cash flows are indicating spending will increase in the final three months of 2015. The cash flow plot provides us with the direction and the rate of change, but not the actual value of spending.

Starts Cashflows Nov 15 rvsd

 

With the September actual spending values included in the data, the statistical average of predicted spending for 2015 is $1.073 trillion. My cash flow analysis by sector predicts 2015 will finish at $1.075 trillion. In 11 out of 14 years, the actual final value has been within 0.5% of the predicted.

The statistical analysis gives a predicted range for total 2015 annual spending between $1.066 trillion and $1.086 trillion. The actual spending total has not fallen outside the statistical range since 2001, as far back as I’ve been tracking the data. I’m confident that total spending for the year will fall within this predicted range.

Claryifying Housing Starts Numbers

This can be a confusing set of housing numbers and I thought needs some clarification. Doesn’t help any that I misquoted my housing statistics in Joe’s interview.  Here’s the correct numbers.

Joe Weisenthal interviews me on Bloomberg TV

New Housing Starts (# new units started) from U S Census.

  • 2012 & 2013 up 28% & 18%.  2014 up 8.4%. 2015 expected up 12.6% and 2016 predicted up 15%.
  • 2012 added 172,000 new units to total 781,000 for the year
  • 2013 added 144,000 new units to total 925,000
  • 2014 added   78,000 new units to total 1,003,000
  • 2015 expect 127,000 new units to total 1,130,000
  • 2016 predict 170,000 new units to total 1,300,000

It’s worth noting here that we would need to go back to 1992 to see another year where the number of new units started in the year exceeded 170,000 units. In the 1970s and early 1980s when total housing units started in a year were near two million units, we see growth years of 400,000 to 600,000 new units in a year. After 1984, only three times have we reached new starts over 170,000 unis in a year, 2012 being one of those years.  I anticipate we will reach that mark again in 2016.

Snip Housing Starts Sept 2015

New Residential Construction Starts $ from Dodge Data.

  • 2012 & 2013 up 32% & 27%.  2014 up 10%. 2015 expected up 16% and 2016 predicted up 16%.

In the following chart of Dodge residential Starts $ we can see the dollar volume of new residential starts stalled from about Q2 2013 through Q4 2013 and then again in early 2014.  That slowed spending.

Snip Constr Starts DDA RES Jan11 Aug15

Construction Spending

  • 2012 & 2013 up 13% & 19%.  2014 up <1%. 2015 expected up 13% and 2016 predicted up 18%.

The 2014 drop in spending is influenced by starts that occurred in the later half of 2013 and through 2014. New units starts monthly were low from May to September 2013 and then again in the 1st quarter of 2014. In the Housing Starts chart above, Jan. 2014 starts 3mo move avg are about the same as Jan 2013, showing the slowed growth. The result is spending dropped from Q4 2013 to Q3 2014. Since then new starts have resumed fairly strong growth and spending for 2015 is expected to finish up 16%. See the period from Aug’14 through Apr’15 when spending increase by 20% in 8 months. I think we will continue with 2016 repeating the same growth, although not without some dips in the monthly readings.

Snip Constr Spend RES Jan11 Aug15

Speaking to Joe’s point on when does this affect GDP, we can see in these charts that the actual spending gets spread out over time, such that any slow down, or in more recent data any acceleration, gets reflected later in the spending numbers, perhaps over the next 9 to 12 months for residential work.  Up to the current quarter where we see a dip in new $ volume of starts, prior to that we recorded 6 consecutive quarters of growth in starts.  After a flat year in 2014 we are poised to see residential construction spending contribute 13% growth & represent 36% of total construction spending in 2015. For 2016 I expect similar growth at a very substantial pace up to 18% growth.

Construction Spending Projected 2015 Totals

Here’s a comparison of projections for total construction spending in 2015.

Spending Predictions TOTALS Nov2-15

My numbers (GBCo) include the latest actual construction spending data released Nov. 2nd for September spending.  This updated projection also includes revised future spending based on Dodge Data & Analytics construction starts released at the DDA Outlook 2016 conference Oct. 30th.  My prediction for total spending in 2015, now at $1.075 trillion, hasn’t changed much (up 0.7%) since August.  However, for next year my projection has increased from $1.150 to now expecting total spending of $1.190 trillion in 2016.  The 2016 projection will be further refined in my year-end report.

With the September spending values in the data, the statistical average predicted spending for 2015 is $1.073 trillion. My cash flow analysis by sector predicts 2015 will finish at $1.075 trillion. In 11 out of 14 years, the actual final value has been within 0.5% of the predicted.

The statistical analysis gives a predicted range for total 2015 annual spending between $1.066 trillion and $1.086 trillion. The actual spending total has not fallen outside the statistical range since 2001, as far back as I’ve been tracking the data.

Here’s a summary of predictions for several of the major markets.  Again, my predictions from earlier in the year haven’t changed too much.

Spending Predictions MARKETS Nov2-15

In today’s data release from U.S. Census, spending for manufacturing buildings was lowered in both July and August, and September came in lower than I expected.  That is the primary mover in the lower prediction for nonresidential buildings. Spending for manufacturing buildings is at an all-time high. Through September, spending on new manufacturing buildings has already reached an all-time annual high.  Manufacturing buildings helped 2015 spending for nonresidential buildings reach 19% growth but this won’t continue and I expect 2016 growth of 10%.

Residential spending has been a nice surprise to the upside.  The current rate of growth for the last 12 months  is 17%/year and this rate of growth is expected to continue again in 2016.

Spending Predictions TOTALS GRAPH Nov2-15

Heard at Dodge Data Outlook 2016, Oct. 30, 2015

Dodge Data & Analytics Outlook 2016 event held in Washington DC, October 30, 2015.

A brief summary of comments heard and information from my notes.

Art Gensler – Founder Gensler

How do you control 5000 people?  Hire good people and get out of their way.

People value what they pay for and ignore what they get for free.

Beth Ann Bovino – U.S.Chief Economist, Global Economics & Research, Standard & Poor’s

Domestic economy is strong and strengthening.

Jobs are stronger – Quits rate is at a 7 year high.

Housing starts are up – Home prices are up.

Wages are struggling and we have a historical 38 year low labor participation rate.

Ted Hathaway – CEO Oldcastle BuildingEnvelope

We increased wages significantly to keep people from leaving.

The cost and disruption is huge if you lose a valuable member of a team.

Dan McQuade – President, Construction Services, AECOM

Three emerging trends

Global collaboration

Investing capital with clients and partners

Better collaboration with vendors & suppliers. Treat subs and vendors as partners.

Larry Kudlow – Economist and Senior Contributor CNBC

Our biggest problem – We do not have strong steady economic growth.

Corporate profits were high after recession but have declined last three quarters. Profits were likely responsible for the stock market rise.

Bob Murray – Vice President, Economic Affairs, Dodge Data & Analytics

The DMI is reflecting the institutional dip has ended and now beginning to grow, although slowly.

New construction starts 2013 = 11%, 2014 = 9%, 2015 = 13%p

Actual $ put-in-place 2013 = 7%, 2014 = 5%, 2015 = 10%

New starts that declined in 2015 Warehouses, Stores, Public Bldgs, Manufacturing

New Starts that increased in 2015 Residential, Hotels, Highway, Electric-Gas-Power

Expectations for 2016

Total new construction starts up 6%.

Residential up 16%, single family will grow faster than multifamily.

Commercial up 11%, led by warehouses and stores

Institutional up 9%, led by educational

Manufacturing down 1%, but from very high 2014 and 2015

Power down 43% from extreme high starts in 2015

Construction cycles may be indicating we have years of growth left in the current cycle.

Nonresidential Buildings Construction Spending 2015 – How Do Industry Predictions Compare?

Throughout the year a number of firms provide predictions of various construction data.  Some firms provide estimates for all segments of construction.  More firms provide estimates only for spending on nonresidential buildings.  This is a summary of various firms estimates published in the 2nd quarter and also for those who’ve updated their estimate recently.

The current available spending data through August allows an analysis of a select data set that gives a prediction of the year end result within +/- 1.5%. My current data predicts 2015 will finish with nonresidential spending at $393 billion, with a potential range between $387 billion and $400 billion. We will have even better data on November 2nd when the US Census publishes construction spending for the month of September. Once the September data is incorporated into the monthly totals, an analysis of a select data set provides a prediction of the year-end totals that has not varied more than +/- 1% from the end-of-year actual since 2002, as far back as the market data is available.

Comparison Nonres Bldgs

Construction Spending or Construction Starts – Media Headlines That Get it Confused

Here’s a headline published recently.

“Construction spending rose year-over-year during first 9 months of 2015”

What they really meant to say

“Construction STARTS rose year-over-year during first 9 months of 2015”

Why make a big deal out of this.  Well, here’s an example.  The brief states “nonbuilding work climbed 35%” during the first nine months of 2015 compared to same months 2014.  TRUE, if we look at new construction STARTS, but construction spending for non building work is down 2.5% during the first 8 months of 2015 vs 2014 (Sept spending won’t be available until November 2nd).

Construction starts help us understand where future spending is headed.  Construction spending is based on how much is occurring this month from all the projects that started in the previous 12 to 30 months.

Let’s use an example to understand new construction starts vs construction spending:

Assume:

All the nonresidential building projects that start in a given month have a schedule duration of 20 months.

The total starts in this month is $60 billion.

Over a duration of 20 months they will average a put-in-place construction spending of 60/20 = $3 billion a month. Spending follows a typical bell curve, starts out slow, gets real strong in the middle and finishes slow. The spending cash flow from these new starts will begin slowly at a rate of perhaps $1 to $2 billion/month, it will peak in about 10 to 12 months at perhaps $4-5 bil/mo, and then will taper to the finish again at about $1-2bil/mo. It will take 20 months to spend this $60 billion in new starts from this single month.

The point here is this:  Current spending is based on the last 2 to 3 years of starts.  New starts will generate the next 2 to 3 years of spending.  Don’t get the two confused.  Big increases in new starts is not telling us how much spending is going on right now, it’s telling us how much spending to expect in the future.  And to get the real picture of what to expect in the future we need to look at the cumulative cash flow that occurs in any given future month from all the previous starts that are still ongoing. Furthermore, the construction starts values that are published every month represent a sampling of new construction activity, approximately 50% to 60% of total construction activity.  While the total reported construction starts for a year might be $500 to $600 billion, the total spending in that year will be more like $1.0 to $1.1 trillion.

Residential Construction – Not All Data Tells The Same Story

The latest New Housing Starts numbers were released today.  Residential growth is looking good and based on several inputs, I’m predicting an increase in residential construction spending next year.  But let’s take a look at the variance you might get when looking at different data sets.

All the data below represents residential construction growth for the period from January 2011 until current, the last 4 years 8 months

New Construction Starts in $ (by Dodge Data Analytics) +19%/yr

Snip Constr Starts DDA RES Jan11 Aug15

New Housing Starts (number of new housing units) +20%/yr

Snip Housing Starts Sept 2015

Total Construction Spending +12.5%/yr

Snip Constr Spend RES Jan11 Aug15

Volume (construction spending minus construction inflation) +7%/yr

Snip Constr Spend minus inflation RES Jan11 Aug15

The obvious first question is why don’t all the data agree?  Without a lot more information on housing that cannot be answered here, but there are a few reasons that can be considered as cause for variation;

  • the average size of housing units being built
  • the quality of the components built into the housing units
  • the cost to the contractor for the materials used
  • the cost of labor wages to build the housing unit

I’m sure there are other reasons to consider as this is not intended to be a complete list of what might cause variances between starts and spending, but it does highlight that starts does not give an exact indication of the growth in spending.  There is a fairly consistent growth rate in starts of 20%/year and yet construction spending in current dollars has been growing at only 12.5%/year.  Furthermore, a sizable portion of that spending growth is just for inflation.  After inflation is taken out we see real construction volume in constant 2015$ has been growing at only 7%/year.

I don’t have an answer to explain these variances.  I’m highlighting the data to show these variances exist and we can’t always rely on one data set exclusively.  Perhaps this will initiate a discussion as to why these data vary by so much.

Construction Spending Market Performance of Major Nonresidential Buildings 2015-2016

The Construction Spending BOOM in 2015 is being led by spending on nonresidential buildings.  Spending on nonresidential buildings year-to-date (YTD) is +20%, +$41 billion. For housing the YTD is +11%, +$24 billion and for nonbuilding infrastructure projects YTD is -2.5%, -$5 billion.

Let’s take a look at the current growth trends to find out where they are headed.

In 2004-2006, residential spending was 55% of all construction spending. The annual growth in 2004 was 19% and in 2005 it was 15%. For the last 5 years residential spending has been only 32%-37% of total spending.  In 2012 & 2013, residential led with annual spending gains of 13% and 19%. In 2014 & 2015, nonresidential buildings, also at 37% of total spending, led the gains at 9% and 19% growth. In 2016 the lead shifts back to residential with a projected growth of 14%. Infrastructure has not led growth since 2007 and 2008 when that sector had growth of 19% and 10%, at a time when residential spending was declining by 19% and 28%.

We can get a very good idea of nonresidential buildings spending and growth by looking at the five major markets. These five markets make up 85% of all nonresidential buildings construction spending and half of total 2015 construction spending growth.

Snip PCT of Spending 5 markets Oct 2015

See my blog post on October 11, 2015. I wrote:

“New nonresidential buildings construction starts cash flows indicate spending will continue to grow until Feb-Mar 2016, then drop consistently each month until Q3 2016.  The decline is almost entirely due to big starts from Q3-Q4 2014 finishing and dropping out of the monthly spending numbers.”

Snip STARTS YTD Aug2015Snip Spending Growth 5 markets 2015 2016 Oct2015 

More detail of how each market will perform, and why, follows.

Educational Construction Spending 2016

Spending in 2016 is projected to grow +5% over 2015. Other industry projections for educational spending in 2016 range from 1.5% to 12% growth over 2015, with the average of those seven estimates at 6%. As of August 2015, project starts that will generate 60% of all spending in 2016 are already booked.

Starts for the first 8 months of 2015 were up 12% from the same 8 months of 2014.  Educational spending increased only 4% year-to-date 2015 from the same period 2014, but the current annual rate of growth is 11%. Monthly spending is increasing and should continue to do so at least until mid-2016 before dropping off slightly into year end.

Healthcare Construction Spending 2016

Spending for healthcare is expected to remain flat with no growth in spending in 2016.  Other industry projections for healthcare spending in 2016 range from 3% to 12% averaging 6% growth. As of August 2015, project starts already booked will generate 60% of all spending in 2016. New starts in 2016 generate about 25% of the total spending in 2016. If we get some very large new starts in the next few months, that could change total spending projections in 2016. Starts would need to increase 20% ( every month) over my projections for the next 16 months to reach 6% growth in spending next year.

Starts for the first 8 months of 2015 were down 4% from the same 8 months of 2014 and most recently have been declining. 2014 starts grew only 2% over 2013. Healthcare spending had an annual growth rate of 5% in the first eight months of 2015. The decline in new starts signals a projected decline in spending for the next 8 months. Spending growth resumes in mid-2016 but at a very low 3% annual rate and that from an already low rate of spending at the start of the year.

Snip Constr Spending Plot Educ Hlthcr Oct15 2015

Commercial/Retail Construction Spending 2016

Spending in 2016 is projected to grow +7% over 2015. Other industry projections for office spending in 2016 range from 5.5% to 15% growth over 2015, with the average of those estimates at 10%. As of August 2015, project starts that will generate 55% of all spending in 2016 are already booked.

Starts for the first 8 months of 2015 were up 17% from the same 8 months of 2014.  Commercial spending increased 15% in the first half 2015 from the first half of 2014, but then spending declined by 8% in the last three months and may continue to decline for the next few months.  Spending will resume a growth rate of 15% annual in the first 8 months of 2016. Commercial spending will peak in the second quarter 2016 before dropping again into year end.

Office Construction Spending 2016

Spending in 2016 is projected to grow +8% over 2015. Seven other industry projections for office spending in 2016 range from 7% to 18% growth over 2015, with the average of those seven estimates at 12%. As of August 2015, project starts that will generate 55% of all spending in 2016 are already booked.

Starts for the first 8 months of 2015 were 23% lower than the first 8 months of 2014  Spending from 2014 starts will start to drop off in late 2015 and early 2016 and based on new starts in 2015, by mid-2016 the monthly rate of spending will start to decline, keeping totals for 2016 to less than 10% growth. Spending on office buildings in 2016 will peak in the 1st half year with the 2nd half coming in 10% lower.

Manufacturing Construction Spending 2016

Spending in 2016 is projected to grow +9% over 2015. Seven other industry projections for manufacturing buildings spending in 2016 range from 5% to 18% growth over 2015, with the average of those seven estimates at 11%. As of August 2015, project starts that will generate 70% of all spending in 2016 are already booked.

Starts for the first 8 months of 2015 were only 6% lower than the first 8 months of 2014. However, even if starts for the next 4 months increase each month by 50% they will still not equal the amount of starts in the last 4 months of 2014.  Total starts for 2015 are projected to finish 20% lower than 2014.  That’s probably a good thing since 2014 starts were up 87% from 2013, the highest annual growth ever recorded for any market sector.

Spending from 2014 starts will start to drop off in late 2015.  Spending reached a peak this year in the 2nd quarter but is expected to drop for the next five to six months. Spending on manufacturing buildings in 2016 will again peak in the 2nd quarter and then drop off into the end of the year.

Snip Constr Spending Plot Mnfg Offc Comm Oct15 2015

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