12-1-16

October construction spending put-in-place was released today by U.S. Census. This report includes the first revision to September data and the 2nd revision to August.

LINK TO U. S. Census October Construction Spending Release 12-1-16

October spending 1st release came in at $1.172 billion, 0.5% higher than September which was revised up 1.4% to $1.166 billion from the 1st release of $1.150. August was revised up 2.1% to $1.166 billion from the 1st release of $1.142.

I predicted October spending would come in at $1.190 billion. Once revisions to October data are posted in Nov and Dec, we may reach that $1.190 billion forecast. Revisions have averaged over 1.4%/mo this year and 1.5%/mo for the last 4 months.

Average spending for the last 3 months is $1.169 billion, the highest three-month average since May-Jun-Jul 2006.

Year-to-date (YTD) spending is up 4.5% over last year, but this may go even higher once the revisions are in. There is now no doubt that we’ve clearly passed a previously forecast dip in spending that bottomed in Apr-May at $1.142 billion. The last 5 months of spending are all up from the low point and the trend is pointing higher.

My forecast for total spending in 2016 is $1,168 billion, up 5% from 2015. I expect 7.6% growth in 2017.

MAJOR SECTORS

Residential spending is up 5.5% ytd and is on track to reach a 2016 total of $468 billion, +6.4% over 2015. Last year, peak spending was in September, then residential spending dropped slightly in Q4 2015. This year I expect 2016 spending to peak in Q4, so we should see ytd performance get better as we approach year end. Cash flow from new starts indicates growth of 9% in 2017 spending.

Total Nonresidential spending is up 3.8% ytd, on track to finish 2016 with total spending at $700 bil, up 4.2% over 2015. Almost all the 2016 growth is in nonresidential buildings, not infrastructure. For the 4mo period Jul-Oct 2016, compared to the same 4mo in 2015, all nonresidential spending is up only 1.7%, but the spending trends are not apparent unless we separate nonresidential buildings from non-building infrastructure. For Jul-Oct 2016, compared to the same period a year ago, nonresidential buildings spending is up 7.6% and non-building infrastructure is down 5.4%.

Nonresidential Buildings spending is up 8.2% ytd through October, led by Office, Lodging and Commercial Retail markets. We should finish 2016 up 8.1% with a total at $409 billion vs. $379 billion in 2015. Total sector growth for the last three years is 35%. I’m predicting 2017 spending for Nonresidential Buildings will increase 7.5%, led by Educational and Office spending.

We are currently at what may be 2016 peak nonresidential buildings spending. I’m expecting nonresidential buildings spending to stall or drop 1.5% to 2% over the next few months before resuming growth. This drop may be in large part due to uneven starts from the end of 2014 and beginning of 2015, a period when starts were abnormally high, that are now finishing and dropping out of the monthly spending values. Usual normal growth patterns in starts do not fill the void left when abnormally high volume of projects finish.

Non-building Infrastructure spending is down 1.2% ytd. Infrastructure spending in 2016 will total $291 billion, down less than 1% from 2015. Spending predicted from Dodge Data Starts predicted this drop. Negative drivers are Transportation, contributing -0.9% to overall decline, Sewage/Waste Disposal -1.0% and Water Supply -0.4%.  Power, the largest infrastructure market at 33% of total, is up 1.4% ytd so adds about +0.5% to offset some of the declines. Highway/Street, 31% of infrastructure, is up only slightly. Growth resumes in Q1 2017. Although new starts in 2016 will finish down 10%, starts in 2015 were so high that 2016 will still be a good volume of new starts. Predicted spending from starts is indicating 2017 will be a record year for spending on infrastructure, up 7% from 2016.

PUBLIC MARKETS

Public spending is down 1.5% ytd, on track to finish 2016 with total spending at $285 billion, down 1.4% from 2015. Public spending will rebound in 2017, up 6.5%.

Educational spending is 80% public and 20% private. Education accounts for 25% of public work. Educational is by far the largest building type in public work. All the remaining building types contribute only 2% to 4% each.

60% of all public work is infrastructure. Highway/Street accounts for 31% of all public work. Transportation facilities is 11% of public work, Sewage and Waste Water 9% and Water 4.5%.

The biggest drivers of performance in public markets by far are Highway/Street and Educational spending. Highway/Street spending reached all-time highs from Dec 2015 to March 2016 but is currently 10% below that level and will end 2016 down 1% from 2015. In public markets educational is only up 5% ytd, but in October experienced the largest monthly increase in the public sector.

REVISIONS AND YEAR/YEAR COMPARISONS

Census construction data is always revised in the following two months after initial release. Census revises data and incorporates more data from additional sources to update spending values. Census updates all the values for the previous year, usually with the May data release (on July 1) the following year.

For the 1st nine months of 2016, seven of nine times the first release of spending showed a decline vs the previous month. After revisions, the values show no declines vs the previous month. The last 36 months of data shows there were 16 Census releases that originally showed a decline vs the previous month. After revisions there were no mo/mo declines in the last 36 months. Revisions in 2016 have averaged 1.4%/mo and 1.5%/mo for the last 4 months.

In 2015, spending peaked in the months of July, August and September, then dropped slightly and remained flat for the last quarter of the year. This 2015 pattern, along with the issue of revisions noted above, is one of the reasons comparisons of 2016 to same month last year was low for August and September. A growth trend is now in place. Expect this month vs same month last year for the remainder of 2016 to come in near or above  +5%.

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