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What Did He Say? Fact Checker – Track Record

MY TRACK RECORD

Indoor Masters National Track Championships

masters age group 45-50

Mile – 4:41.7 – 4th place

3000m – 9:25.3 – 3rd place

Oh, wait. That’s not what you are here to read. You want my track record on construction economic forecasts.  How good are my forecasts? Do they prove to be accurate?  How do they compare to the rest of the industry forecasts? OK. Let’s have a look.

  • Bullets show what I forecast.

This is what actually occurred. Actual is in red if I got it wrong.

From Jan 2013

  • The ABI, McGraw Hill Dodge new starts and the Dodge Momentum Index (DMI) are all indicating a dip in nonresidential spending potentially from February through May 2013.
  • Architecture Billings Index (ABI) went UP from May 2012 to January 2013 with only December down slightly (see figure B). This is a very good leading indicator for new construction work starting in Q3-Q4 2013.
  • I expect a dip in nonresidential buildings work between January and May 2013, at which point all indicators point to sustained growth through year end.

From February 2013 through June 2013 actual spending on nonresidential buildings dropped by 2%. Then from June through November spending increased by 6%.

From Jan 2013

  • As spending continues to increase, contractors gain more ability to pass along costs and increase margins. However, contractors almost always are playing catch-up. In the most recent three-month period, contractors’ costs began to climb faster than whole building costs went up, due to both increasing material costs and declining productivity.
  • Once growth in nonresidential picks up and both residential and nonresidential are active, we will begin to see apparent labor shortages and productivity losses.

For 2013 and 2014 construction spending increased 7% and 10%. During that 2 year period, total labor and materials inputs increased only 2% to 3%, but construction inflation measured 4.5%. Margins increases drove up the total inflation cost. Available (nonworking) workforce declined to about 400,000, near the lowest on record. Productivity declined by 2%.

From Jan 2013

  • Construction Spending for 2013 will be pushed higher by huge growth in residential construction, a rate of spending growth that increased by 30% from Q1 to Q4 2012

Residential spending in 2013 grew at a rate of 1.5% per month, largest one year growth since 2004.

From Jan 2013

  • The National Association of Home Builders consensus estimate for new residential units is growth of 23% in 2013 and 33% in 2014. 2012 grew by 28%.
  • The NAHB projections are for an increase of 150,000 units in 2013 and 230,000 in 2014, 20% and 27% growth the next two years.  There’s a possibility we could achieve that.  But, especially in 2014, that would exceed the fastest growth rates, both volume and total jobs, achieved in the last 30 years.
  • Mark Zandi, economist for Moody’s, in the same article is quoted as saying his more optimistic forecast has residential construction growing to 1.1mil in 2013 and 1.7mil new housing starts in 2014, growth of 46% and then 54%. I say NO WAY
  • A more reasonable projection is new housing starts may reach 850K to 900K in 2013 and 1.0 to 1.05 million in 2014, new homes growth rates of 15% to 20% and total residential spending growth of 12% to 15%. That still has the workforce expanding rapidly, but at least at a not unheard of rate.

Housing starts reached 925,000 in 2013 and 1,003,000 in 2014, well below the 30 year historical annual growth.  

From Jan 2013

  • Future escalation, in order to capture increasing margins, will be higher than normal labor/material cost growth. Lagging regions will take longer to experience high escalation.
  • I’m advising a range of 4% to 6% for 2013, 5% to 7% for 2014 and 6% to 8% for 2015.
  • Expect residential escalation near the upper end of the range.

Actual total construction cost inflation 2013 = 4.3%, 2014 = 4.7% 2015 = 2.9%.  All inflation values were held to lower totals due to infrastructure work which did not have more than 2% inflation during that period and actually experienced deflation in 2015. Residential buildings inflation  for 2013-14-15 was 8.9%, 7.1% and 4.1%.

Posted April 2014

  • Construction Spending “residential buildings” expect $379 billion in 2014
  • Construction Spending “nonresidential buildings” expect $325 billion in 2014
  • Construction Spending “totals” expect $960 billion in 2014

Posted August 2014

  • Construction Spending “residential buildings” expect $365 billion in 2014
  • Construction Spending “nonresidential buildings” expect $314 billion in 2014
  • Construction Spending “totals” expect $961 billion in 2014

2014 Residential spending = $354 billion

2014 Nonresidential spending = $320 billion

2014 Total Construction spending = $960 billion

These values prior to U.S. Census major correction to data.

Posted August 2014

  • If you are pricing future construction jobs the way you always have, with 2-3 pct escalation, you are already in trouble!
  • If you’re an owner with plans to construct a building in the future and you are inflating cost by only 2-3 pct, you’ve missed the boat.

Total construction inflation for 2013-14-15 was 4.3%, 4.7% and 2.9%.  All years were reduced by a lack of inflation in infrastructure work. Inflation for nonresidential buildings was 3.5%, 4.2% and 4.8%.  Residential buildings inflation was 8.9%, 7.1% and 4.1%.

Posted September 2014

  • Real Construction Volume in 2014 (construction spending minus inflation) will grow less than 2 percent

Real construction volume in 2014 increased 4.9%. Commercial nonresidential construction started it’s current boom.

Posted Dec 2014

  • Construction Spending “residential buildings” expect $405 billion in 2015
  • Construction Spending “nonresidential buildings” expect $364 billion in 2015
  • Construction Spending “totals” expect $1,040 billion in 2015

Posted Jan 2015

  • Cash flow of new starts for nonresidential buildings indicates a 15% increase in the monthly rate of spending over the next 10 months.
  • Both ABI and Starts cash flows indicate a mild slowdown in nonresidential buildings construction spending at the end of 2014 before a strong upturn in spending in 2015.  Expect another drop in spending late in 2015

For the period Nov 2014 through Feb 2015, spending on nonresidential buildings stalled flat for 4 months. The monthly rate of spending increased 14% over the 10 months from Oct 2014 to September 2015. Since Sept 2015 spending has been flat.

Posted March 2015

  • Even if new starts turn flat for rest of 2015, starts already recorded are indicating Nonresidential buildings construction spending for 2015 will reach 15%+ growth. My closest competitor is forecasting 12.5% growth.  The average of all other industry forecasts is 8% growth.

Spending for nonresidential buildings actually hit +17% growth over 2014.

Posted July 2015

  • Construction Spending “residential buildings” expect $388 billion in 2015
  • Construction Spending “nonresidential buildings” expect $397 billion in 2015
  • Construction Spending “totals” expect $1,067 billion in 2015

2015 Residential spending = $390 billion

2015 Nonresidential spending = $387 billion

2015 Total Construction spending = $1068 billion

These values prior to U.S. Census major correction to data.

Posted July  2015

  • Nonresidential Buildings spending growth 2015 vs 2014.
  • My forecast  (Average all others)   [closest competitor]
  • Educational                   7.1%      (3.8%)    [5.6%]
  • Healthcare                     6.0%     (3.9%)     [4.0%]
  • Commercial/Retail         5.5%     (11.8%)    [8.4%]
  • Lodging                         24.0%    (13.7%)   [17.1%]
  • Office                            21.1%    (13.5%)   [19.2%]
  • Manufacturing                49.6%    (15.9%)   [24.6%]

Educational               6.7%

Healthcare                 4.6%

Commercial/Retail      8.4%

Lodging                    30.8%

Office                        21.9%

Manufacturing           47.3%

So there you have it.  Several years of forecasts and how they turned out. You can get an idea of my track record. You be the judge. 🙂

 


1 Comment

  1. Denis OMalley says:

    Very cool! I find your analysis immensely helpful and highlight your research to the hvac & electrical suppliers I call to sell ad space in ASHRAE Journal and Electrical Contractor.thanks

    Like

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