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%

Spending Forecast

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