Home » Forecast » January 2016 Construction Economics Report

January 2016 Construction Economics Report

For the latest Construction Economics news follow this link

Construction Economic Outlook

 January 2016 economic report:


Construction Economics – Market Conditions in Construction.

Construction spending may reach historic growth in 2016. We are currently near the most active 3 year period of growth in construction in more than 20 years, and it’s already been ongoing since 2013-2014.

Construction spending is forecast to increase 9.7% in 2016. Spending could reach a total 30% growth for the three years 2014-15-16. The only comparable periods in the last 20 years are 29% in 2003-04-05 and 27% in 2013-14-15.

Uneven growth rates ranging from rapidly increasing spending to slight dips is more an indication of the effects of uneven new starts patterns than a loss of growth momentum.

Index of Actual Spending and Starts Cash Flows 2012-2017


Nonresidential buildings spending is forecast to grow 13.7% in 2016 and the three-year total growth could reach 40% for 2014-15-16. The only comparable growth periods in the last 20 years are 40% in 2006-07-08 and 32% in 1995-96-97. Major contributions are increasing from institutional work in educational and healthcare markets. Office, commercial retail, lodging and manufacturing will decline considerably from from the levels in 2015 but still provide support to 2016 growth.

Residential spending increased 46% in 2013-14-15, similar to only one comparable period in the last 20 years, 48% in 2003-04-05. Residential spending will slow several percent early in 2016 before resuming upward momentum to finish the year with 12% growth, slightly less than growth in 2014 and 2015.

Non-building infrastructure projects, in two of the last three years have barely shown any gains, entirely due to declines in power plant projects. This will repeat in 2016. Spending will decline over the next six months due to the ending of massive projects that started 24 to 42 months ago, then resume moderate growth. Following a 0.5% increase in 2015, spending will increase only 1.2% in 2016, held down by a 10% drop in power projects, the second largest component of infrastructure work.


Construction added 1.0 million jobs in the five years 2011-2015.  800,000 jobs were added in the last three years. In addition, hours worked increased to an all-time high adding the equivalent of 240,000 more jobs over the last five years.

In the two years 2014-2015, jobs increased the most since 2004-2005. Growth in nonresidential buildings and residential construction in 2014 and 2015 led to significant labor demand and wage growth. To support forecast spending, jobs need to grow by 500,000 to 600,000 in 2016-2017.

From the low-point of the recession in January 2010, the unemployment rate began declining as a result of the unfortunate reason of workers leaving the construction workforce.  That decline halted in early 2013, at which point the workforce once again started growing. Since then the unemployment rate has been declining due to the non-working pool being reabsorbed into the the employed workforce.

There are numerous reports of labor shortages in some building professions. Average construction unemployment for Nov-Dec-Jan equaled the lowest on record (for this 3mo period) last seen in 2006, indicating a low available nonworking pool from which to grow jobs.  This data supports the argument of labor shortages and potential difficulties ahead in growing employment. However, jobs continue to grow at the fastest rate in 10 years.


Construction inflation for buildings in 2016-2017 is quite likely to advance higher and more rapidly than previously thought. Long term construction cost inflation is normally about double consumer price inflation. Construction inflation in rapid growth years is much higher than average long-term inflation. Since 1993, long-term annual construction inflation for buildings has been 3.5%, even when including the recessionary period 2007-2011. During rapid growth periods, inflation averages more than 8%. 

Spending growth, up 35% in the four-year period 2012-2015, exceeded the growth during 2003-2006 (33%) and 1996-1999 (32%) which were the two fastest growth periods on record with the highest rates of inflation and productivity loss. Construction spending growth for the four year period 2013-2016 is going to outpace all previous periods.

Inflation cost for residential buildings, nonresidential buildings and infrastructure projects do not follow the same pattern. For the last three years, the Gilbane Building Cost Index for nonresidential buildings has been increasing and has averaged just over +4%. Residential buildings cost indices averaged just over +6% but have been decreasing. Both are expected to climb in 2016. Caution: composite all-construction cost indices or indices that do not represent final cost should not be used to adjust project costs.

Infrastructure indices are so unique to the type of work that individual specific infrastructure indices should be used to adjust cost of work. The FWHA highway index dropped 4% in 2013-2014 but increased 4% in 2015 and is expected to increase in 2016-2017. The IHS power plant cost index gained 12% from 2011-2014 but then plummeted in 2015 to an eight year low. The Producer Price Index (PPI) industrial structures index and the PPI other nonresidential structures index both have been relatively flat or declining for the last three years.

Anticipate construction inflation for residential and nonresidential buildings during the next two years closer to the high end rapid growth rate of 6% to 8% rather than the long term average of 3.5%.

Building Cost Inflation Index

The full report provides analysis for what occurred in 2015, data that supports 2016 forecasts and historical trends that shape the construction industry.


Author’s note: I provided all opinion in this economic report.  Now, as an independent construction economics analyst, I compile economic information and perform data analysis. You can now find all this analysis here in this new blog format. EdZ

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Follow Construction Analytics on WordPress.com

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 645 other subscribers


%d bloggers like this: