11/26/16

In 2015, nonresidential buildings starts were very high in the beginning of the year and dropped off in the later part of the year. In 2016 it’s just the opposite. This skews year-to-date total comparisons and for most of this year makes it appear as if there may be no growth in new starts.

Here’s a simple example:

Let’s say 4 months in 2016 had starts of $6, 8, 10 and 12 billion and the same months in 2015 had starts of $10, 9, 8 and 7 billion. The year-to-date change for 2016 vs 2015 after the 1st month (6 vs 10) is down 40%. After two months it’s 14 vs 19 (6+8 vs 10+9), down 26%. In the 3rd month 2016 has better performance than 2015 (10 vs 8), but the year-to-date (24 vs 27), down 11%, is still strongly influenced by the earlier months. But in the 4th month we get 36 vs 34 and finally the year-to-date shows 2016 growth of 6% over 2015. That is the current scenario.

Construction Starts for nonresidential buildings for the 1st 4 months in the 2nd half of 2016 (Jul-Oct) are 30% higher than the average of the 1st half 2016 and almost 40% higher than the same 4 months in 2015, and yet the year-to-date % change 2016 vs 2015 is ZERO.

To keep from being misdirected, year-to-date comparisons require knowing not only the direction of the current year trend but also the direction of the previous year trend.

The most recent 3 month (Aug-Sep-Oct) average of nonresidential buildings construction starts by Dodge Data represent the best 3 months since Q1 2008. Although year-to-date performance of zero growth would seem to indicate a slow down, starts are doing just fine. I’m forecasting the final two months of the year to be up 40% from 2015.

But wait, there’s more!

Every year, starts from the previous year are adjusted, always higher. 2016 starts won’t be adjusted up until 2017. But that means all current 2016 (un-adjusted) starts are being compared to 2015  that has already been adjusted up. This causes the year-to-date comparison to be always understated. The average adjustment to nonresidential building starts for the last few years has been about +5%. If that trend remains consistent then next year we should see that 2016 starts were approximately 5% higher than first posted and growth was really much better than current values would seem to indicate.

With 10 months of data in hand, year-to-date starts for nonresidential buildings show no change from 2015. However starts are doing very well and I’m predicting the 2016 volume of starts will lead to 8% growth in spending in 2017.