Jobs and Volume
The period 2011-2017 shows both spending and jobs growth at or near record highs.
Construction added 1,339,000 jobs in the last 5 years. The only time in history that exceeded jobs growth like that was the period 1993-99 with the highest 5-year growth ever of 1,483,000 jobs. That same 1993-99 period had the previous highest 5-year spending and volume growth going back to 1984-88.
Construction added 185,000 jobs in the last 4 months. That’s happened, for any 4-month period, only 5 times since 1984. The last time was 2005-06, during the fastest rate of spending increases since 1984.
Nonresidential spending increased 43% since 2010, but there was 30% inflation. Real nonresidential volume since 2010 has increased by only 12%. Jobs increased by 27%, 15% in excess of volume growth.
Residential spending increased by 110% since 2010, but after inflation, real residential volume increased by only 57%. Jobs increased by only 37%, 20% short of volume growth.
Times of rapid spending growth are usually accompanied by higher rates of inflation.
Historical 20-year average total composite construction inflation, without including recession years, is 4.2%. When including the recession years, the average is 3.5%.
For the last 4 to 5 years average inflation for nonresidential buildings is 4.5% to 5%.
For the last 4 to 5 years average inflation for residential buildings is 5.5% to 6%.
Inflation in the highway sector averaged only 2.5% for last seven years. The power sector has experienced 5% deflation over the last 4 years.
Current$ vs Constant$
Construction spending reached a new high in 2017 at $1,236 billion in current $. The previous high in current $ was $1,161 in 2006. Spending surpassed that in 2014 and has been increasing since. But that is in current $, which includes inflation.
Comparing current $ spending to previous year spending does not give any indication if business is increasing. The inflation factor is missing. If spending is increasing at 4%/year in a time when inflation is 6%/year, real volume is declining by 2%.
After adjusting all spending to equivalent 2017$, we see that all years from 1997 through 2008 had greater volume than 2017. In 2005 volume reached a peak at $1,450 billion. While spending in current $ is 7% higher than the previous high spending, volume is still 15% lower than the previous high volume.
Total All 2018 construction spending is projected to increase 8% to $1.330 trillion.
Spending measured in current 2018$ will reach an all-time high, however, measured in constant inflation adjusted dollars, will still come in 14% below the 2005 high. When comparing inflation adjusted constant dollars, 2018 spending will still be lower than all years from 1998 through 2007.
Nonresidential Buildings new starts are up 60% in four years. 2018 starting backlog is the highest ever, up 15% from 2017. Spending for 2018 is projected to increase 9%. For 2018, Educational spending is projected to increase 14%, the strongest growth since 2007. Starting backlog increased 10%/year for the last three years. Manufacturing posted several very large project starts in 2017. Spending is projected to increase 12% in 2018.
Non-building Infrastructure 2018 starting backlog is the highest ever, up 10%+ each of the last 3 years. Spending reached an all-time high in 2015 and stayed within 0.3% of that high for 2016. Spending for 2018 is projected to increase 8% to an all-time high. Transportation terminals new starts in 2017 jumped 120%. Rail project starts increased more than 100%. Starting backlog for all transportation work is the highest ever, up 100% in the last two years. Spending is projected to increase 20-25%/year for the next two years.
Public construction is a subset of both Nonresidential Buildings and Non-building Infrastructure. Due to long duration job types, 2018 starting backlog is up 30% in the last 3 years. In 2018, 40% of all spending comes from jobs that started before 2017. Leading 2018 spending growth are Educational and Transportation with a combined total forecast 20% growth. Expect 2018 public spending to increase 6% to 8%, the best growth in 10 years.
Residential spending is more dependent on new starts within the most recent 12 months than on backlog from previous starts. Total starts for the last 6 months are the highest since 2006, but new starts in 2018 are projected at only +7%. Residential spending in 2018 is projected to increase only 6% after five years of increases over 10%.
Infrastructure and Public Work
Only 60% of all Infrastructure spending is publicly funded. That public subset of work averages growth of less than $10 billion/year.
The two largest markets contributing to public spending are Highway/Bridge (32%) and Educational (26%), together accounting for nearly 60% of all public construction spending. At #3, Transportation is only about 10% of public spending.
Infrastructure construction spending is near all-time highs and has been for the last several years. Public spending is 10% ($30bil) below all-time highs, the largest deficits coming from Educational, Sewage/Waste Water and Water Supply.
Current levels of backlog and predicted new starts gives a projection that Public Non-building Infrastructure spending will reach an all-time high in 2018 and again in 2019.