On November 1, September construction spending will be released. The September spending release is always a solid turning point for the 2017 forecast. Here’s a few facts leading into the forecast which will incorporate this data and be posted soon after the 11-1-17 spending release.
2017 construction spending will come in at $1,250 billion, up 5.5% from 2016.
Largest $ contributors to growth in 2017 spending: Residential $56b, Commercial Retail $12b, Office $6b.
Largest $ declines in 2017 spending: Manufacturing -$8b, Public Works -$6b.
Total construction spending averaged 8%/yr growth last 6 yrs (2014 & 2015 at 11%). Expect 6% in 2018, 5% in 2019
Construction spending on Infrastructure leads growth for the next 3 years and it has nothing to do with an infrastructure spending bill.
Infrastructure spending in 2018 is led by Power and Transportation markets.
Most of the 2018 spending in the Power market will be generated from starts in 2016. Equally strong 2017 starts will generate most of the Power spending in 2019.
Public construction spending in 2018 will reach highest yr/yr growth rate in over 10 years powered by Educational spending.
Commercial/Retail spending in 2018 slows but most other nonresidential buildings still show strong growth, especially Office and Educational.
Residential spending slows to a crawl after more than 100% growth in last 6 years. Currently predicting only 5% to 6% growth over next 2 years.
Residential spending may change during the year because, while spending in all other markets is dependent on starting backlog, residential spending is primarily dependent on new starts within the year
Largest $ contributors to growth in 2018 spending: Power $22b, Office $15b, Educational $10b, Transportation $5b.
Largest $ declines in 2018 spending: none greater than -$2b.
Nonresidential Buildings and Infrastructure construction will both hit new all-time highs for starting backlog in 2017 and 2018. Both will see a 9% increase in spending in 2018.
Infrastructure construction spending never dropped due to the recession as much as Nonresidential Buildings or Residential.
Nonres Bldgs dropped 35% from $438bil in 2008 to $284bil in 2011.
Residential dropped 60% from $630bil in 2005 to $252bil in both 2010 and 2011.
Infrastructure declined only 8% from $274bil in 2009 to $251bil in 2011. It rebounded to $305bil in 2015, a new high.
Nonres Bldgs spending is just 3% below the previous high but residential is still 16% below 2005.
In constant$, adjusted for inflation, Nonres Bldgs peaked at $537bil in 2000 and Residential peaked at $755bil in 2005.
Nonres Bldgs is still 21% below the inflation adjusted peak. Residential is still 30% below.
Infrastructure reached an inflation adjusted peak in 2009 at $300bil. It hit a new high in 2016 at $313bil and in currently down 6% from that high. It will set a another new high in 2018.
Watch for the new 2017-2018 Spending Forecast to be posted within the week after the September data is released 11-1-17.
These other recently posted articles also have information relative to the 2017-18 forecast
Is Infrastructure construction spending near all-time lows? This question is raised because I saw comments to this affect recently posted on a major national construction professional organization twitter feed.
First, this raises several other questions:
- Exactly what construction markets are being referenced as infrastructure?
- Does this reference include public work only, or both public and private?
- Are educational and health care being included as infrastructure?
- Does this reference constant inflation adjusted spending?
The construction markets typically referred to as infrastructure, in order of largest to least volume, include; Power, Highway, Transportation, Sewage/Waste Water, Communications, Water Supply and Conservation. Sometimes also considered are Educational (3rd after Highway), Healthcare (after Transportation) and Public Safety (2nd smallest).
If only public work is included, everything changes. Most (90%+) of Power spending is private, so it represents less than 3% of public work. The largest contributors in this case are: Highway (32% of public work), Educational (25%), Transportation (11%), Sewage (8%) and Water Supply (4%). No other market is greater than 3% of public work.
And finally, is the reference to current dollars as originally spent within each year, or to constant inflation adjusted dollars, adjusting all historical expenditures to constant 2017 dollars? Any comparison to determine if real growth has occurred should be in constant dollars, in this case all adjusted to 2017.
Typical infrastructure, not including educational, healthcare or public safety, but including all public and private sector work produces this result:
However, the most likely reference is to typical public infrastructure, not including educational, healthcare or public safety. This scenario includes only the public sector work of typical infrastructure and eliminates private spending. This eliminates 90%+ of all power work, 30% of transportation and 100% of communications, in total, more than $100 billion in current dollars. This is the result:
In both instances, the lows, whether using current or constant dollars, occurred between 1993 and 2004. The highs are recent, all occurring from 2007 to 2016. 2017 spending dropped somewhat from 2016, but this is still prone to revision, which is always up.
To answer the question, Is Infrastructure construction spending near all-time lows? NO! Infrastructure construction spending is not at or even near all-time lows. Public sector infrastructure is lower than All infrastructure, but All infrastructure is not even near recent lows. It is near all-time highs!
Infrastructure construction spending in June-August dropped to the lowest since November 2014. However, this was not unexpected. Cash flow models of infrastructure starts from the last several years show monthly spending dips and peaks. Current dips in spending are being caused by uneven project closeouts from several years ago. The actual current backlog is at an all-time high and spending will follow the expected cash flow.
Infrastructure starting backlog hit a new all-time high in 2017 and will again in 2018. Public Infrastructure new starts reached all-time highs in 2013 and 2015 and are on track to go higher in 2017. 80% of infrastructure spending within the year comes from backlog at the start of the year and that backlog may be comprised of jobs one, two, three and even four years old.
Infrastructure spending in 2017, although down slightly from the all-time high reached in 2015 and nearly equaled in 2016, will reach a new high in 2018.
(This analysis does not include any spending projections from an infrastructure investment bill).
Highway spending is currently benefiting from projects that started in 2015 but that have unusually high value and long duration. They contribute spending well into 2018 beyond the duration that typical projects have ended.
Transportation Terminal starts in the first three months of 2017 were more than three times higher than any three-month period in the previous five years. However, 2017 spending is still affected by uneven starts from two to three years ago, holding down gains in the 2nd half. Transportation will show only a 1% gain in 2017 but produces double digit gains in 2018.
Infrastructure construction spending is near all-time HIGHS and has been for the last several years. That is not meant to indicate there is no need for infrastructure investment. I think the need is well established, particularly for public infrastructure. However, I’ve been writing about infrastructure for more than a year, pointing out the level of activity in this sector and the difficulty that will arise when we try to increase work volumes. The approach to adding new work and the discussions surrounding this approach should reference accurate data, and that should include an accurate representation of current workload and future ability to absorb more work.
For much more in-depth related to infrastructure construction see this post Infrastructure Spending & Jobs
You know those articles you’ve been seeing, “Worst year for construction spending since 2010″, well there’s some truth to that, BUT
2017 is the 6th year of the expansion. It has slowed, but… Here comes the BUT!
10-4-17 – Construction numbers are at all-time highs! Slowing or not, activity is very strong. Looking behind the headlines, here’s what we see;
Residential construction spending is slowing the most, from +11% in 2017 to only +2% in 2018 after six years averaging 13%/yr. Nonresidential buildings spending this year just kept up with the rate of inflation (4%), none-the-less, it’s at record highs. It doubles that rate of growth to 8% in 2018. Non-building infrastructure, down 2% in 2017, next year expect growth of 10%+, coming from long duration jobs.
The real performance numbers in Infrastructure are completely hidden. Spending was near flat for three years. But during that time, contrary to every other sector which experienced inflation of 15%, Non-building Infrastructure experienced deflation of 7%. (Gee, didn’t I read somewhere that activity within a sector is a primary driver of inflation?) Anyway, flat spending means volume really increased by 7% during that time. Spending by itself never tells the whole story!
There were some expected dips in spending recently, Manufacturing, Power, Highway, and there will be more in early 2018. BUT, there are also expected boosts in spending, Office, Commercial/Retail. Some of these already have matched up with the forecast, and there are more to come in 2018, Power, Transportation.
All Nonresidential Backlog is at record highs.
Buildings and Infrastructure will both hit new all-time highs for starting backlog in 2017 and again in 2018. For four years, from 2010 to 2013, all nonresidential backlog remained fairly constant. Since then, backlog for infrastructure is up 30% and for buildings it’s up 60%. (75% to 80% of nonresidential spending within the year comes from backlog at the start of the year. For residential, 70% of spending comes from new starts within the year.) Buildings will hit spending records in both 2017 and 2018. Infrastructure spending will hit a new high in 2018.
Ignoring for the moment that comparing any month to the same month last year can be grossly misleading as to the direction the markets are headed (for reasons explained in other recent posts on this blog), 2017 total spending growth is the lowest % yr/yr growth since 2011 (not 2010). Does that make it “worst”?
Spending will gain +5.6% in 2017, the least gain in six years. Last year was +6.5%, 2013 was +6.6%. The average for the last six years is +8%. So 2017 is the worst. Pretty damn good worst!
Data released 10-2-17
Preliminary Report August Construction Spending
August construction spending was posted today at $1.218 trillion, up 0.5% from the 1st revision to July.
- Residential spending is up 0.5% from July, up 12.3% YTD.
- Nonresidential Buildings spending is up 1.8% from July, up 4.5% YTD.
- Non-building Infrastructure is down 0.5% from July, down 3.4% YTD.
Year-to-date through August posted at $806 billion, up 4.7% from same period 2016.
What you should know – Revisions:
Since the bottom of the recession in January 2011, through June 2017 (78 months), spending vs the prior month was 1st reported down 42 times. Values were revised up 64 times, but not all months turned positive. After revisions, spending was down vs the prior month fewer than 20 times.
Monthly values are revised the next two months after initial release. Spending has been revised UP 15x in last 18 months. The average revision in following two months is +1.0%. This table shows the growth before and after revisions this year. Notice, spending was 1st reported down vs the prior month 5 times through June. After revisions spending is down only twice.
All values for the year are revised again in following May data report. The final revision has been UP 49 of the last 53 months. Average post-annual revision 2016 +2.2%; 2015 +4.3%; 2014 +4.4%. The average post-annual revision for the last 4 years is just over 3%.
Year-over-year and year-to-date comparisons of construction spending are generally understated by about 2% to 3% until the final revision of spending data is posted in May the following year.
Year-to-date construction spending through August is posted at $806 billion, up 4.7% from same period 2016. However, the post-annual revision has already been applied to all months in 2016. The same revision will not be applied to 2017 data until May 2018 data is published next year, so current YTD is always understated. Based on post-annual revisions for the last 4 years, adjustments range between +2% and +4%. The most recent six months has averaged +2.4%. So YTD 2017 spending will very likely increase and could be in the range of 6% to 8%.
Market Specific Revisions
Specific markets vary both higher and lower than the average revision. For example Power has been revised on average +10%, while Educational was revised less than 2%. Highway and Transportation revisions have averaged less than 1% over the last 18 months.
Construction Spending Revisions After 1st Release Through August Data:
Every month this year except April has been revised UP. The April data looks like such an anomaly (largest monthly decline since the recession) that I expect next May we will see April get revised up by +1% to +1.5%. July data gets revised next month and I expect to see an additional +1% to +1.5%.
- Total Construction UP 49 of last 53 months, avg 3.7%/mo.
- Total Construction UP 17 of last 19 months, avg 2.5%/mo.
- Residential revised UP 30 of last 31 months, avg 6.8%/mo.
- Residential UP 18 of 19 avg 3.6%/mo.
- Commercial UP 18 of 19 avg 5.7%
- Educational UP 13 of 19 avg 1.7%
- Power UP 19 of 19 avg 10.7%
- Commercial/Retail May +6.7%, June +3.8%, July +3.7%
- Lodging May +4.3%, June +0.2%, July +1.4%
- Educational May -0.7%, June +3.4%, July -1.8%
- Transportation May +3.5%, June +2.1%, July -1.8%
2017 construction spending is expected to reach $1,252 billion, up 5.6% from 2016. Average annual rate of spending will increase to $1,300 at year end. I wouldn’t be surprised to see future revisions to Mar-Apr-May spending smooth out that erratic period and add to total $ 2017.
In my forecast, I rely on the revision data by market to add a conservative adjustment for expected normal revisions.
My current Forecast has spending year-to-date through August up nearly 6% over 2016. Spending in the 2nd half 2017 will increase 1.5% to 2% over the 1st half 2017 and will increase more than 5% over the 2nd half 2016.
- All sectors have already hit spending lows for the year and will increase 4% to 8% over the next six months.
- Infrastructure will finish the year with totals down 2%, but the annual rate of spending could potentially increase 8% from July to year end. 2018 shows 11% growth.
- Nonresidential Buildings may finish up 5% in 2017, the sixth consecutive year of growth. For 2018 expect 8% growth.
- Residential spending will be up nearly 12% for 2017, the sixth year over 9%. Spending growth in 2018 slows to 2%.
- Backlog and the share of spending within the current year from that backlog is at an all-time high for nonresidential buildings and non-building infrastructure.
- Public work for 2017 will finish down 1.5%. By far the largest public spending declines are in Environmental Public Works, especially Sewer and Waste Disposal.
- Public spending is headed for a sizable rebound in 2018, up 9%.
- Every large Public category is forecast to show solid growth from the 4th qtr 2017 through all of 2018.
- This analysis does not include any spending projections from an infrastructure investment bill.
- Largest declines 2017; Manufacturing -11% ytd; Environmental Public Works -16% ytd.
- Largest increases 2017; Office +10% ytd; Commercial +16% ytd; Residential +13% ytd.
See this article Construction Starts and Spending Trends 2017-2018 for more on spending trends