Home » 2019

Yearly Archives: 2019

Preview of Inflation and Forecasting Presentation

This PDF is a preview of selected slides from my

Advancing Pre-construction & Estimating Presentation

Construction Inflation & Forecasting 5-22-19

Preview of Advancing Preconstruction & Estimating Presentation 5-19


The entire presentation is scheduled for 5-22-19 at

Advancing Pre-construction & Estimating conference 2019

Who Uses Construction Analytics Data?

Construction Analytics provides in-depth and unique analysis and future forecasting of construction data valuable to a wide variety of users. Construction Analytics data has been referenced by construction firms, university graduate studies, real estate firms, online educators, investment firms, school district planning boards, public agencies for developing infrastructure budgets and news agencies around the country.

Construction firms, real estate developers, national construction organizations and industry conference planners have engaged Construction Analytics to provide special reports and presentations.

National agencies, universities, construction firms and conference planners have reached out to Construction Analytics for presentations to large and small groups. A sampling of some construction economic presentations: American Institute of Architects; Associated General Contractors; Project Management Institute; McGraw Hill Construction; Georgia Tech Civil Engineering; Worcester Polytechnic Institute Civil Engineering; Hanson-Wade Advancing Building Estimation Conference.

Upcoming event:  Economic Forecast and Inflation Presentation at Advancing Building Estimation Conference – Dallas, TX, May 22, 2019

Construction Analytics has appeared in interviews by Bloomberg TV and ConstructechTV and has been widely quoted in Bloomberg News,  Washington Post Business,  WaPo Fact Checker,  Financial Times,  CNBC,  Marketwatch Economy,  Newsweek,  Los Angeles Times,   strategy+business,  Yahoo!Finance,  STEEL Market UpdateConstructiondive,  BuildZoom  and a host of other blogs and news sources.


Construction Analytics

Ed Zarenski

Caution Reading the Recent 2018 Construction Spending $


Construction Spending for Jan was just released March 13th at $1.287 trillion saar, up 1.3% from Dec. But…

the most notable numbers in this March report are BIG REVISIONS DOWNWARD TO NOV (-2.3%) AND DEC (-2.2%), particularly to residential.

Residential revisions Nov -3.9%, Dec -4.4%.

Nonresidential revised down -0.8% in both Nov & Dec.

2018 total spending currently at $1.293 trillion, 2% below expected.

If these residential reports are correct, we have been in a residential construction spending downturn, now down 12% since last May. I predict these numbers are suspect.

Current total residential spending for 2018 in this most recent report is $545 billion, up 2.6% from 2017. But after deducting 4.4% residential inflation, that means real residential construction volume would be DOWN -1.8% for 2018. Yet, new starts in 2018 were up 6% and new residential jobs increased 3.5%.

However, in 2018 residential spending, the monthly variances from statistical rates of spending look very similar to 2006, up thru May then down 15% to year end.

Cash flow models of construction starts data from Dodge Data for residential spending spread over time indicate residential spending should be UP 3% since May, not down!

Just a reminder, we had a huge upward revision to 2015 residential spending data in July 2016. The 2018 data gets a big revision on July 1, 2019.

The monthly spending data gets revised three times after the 1st release. In the mean time, it can be compared to the statistical averages to determine if 1st reports, or even 2nd reports of spending are in line with expectations. The current Nov and Dec residential construction spending data varies from the statistical average by 3 to 4 standard deviations. That’s highly unusual!

To understand just how unusual that is, let’s compare to how rare any monthly spending varies by 2 standard deviations (StdDev) from the statistical monthly average:

Non-Builiding Infrastructure has varied by 2 StdDev only 5 times in 18 years, only once in the last 15 years, even including recessionary years.

Excluding recessionary years, Nonresidential Buildings varied by more than 2 StdDev  only 12 times in 16 years and only 4 times in the last 8 years.

In both those data sets above, only twice ever in over 400 total months of data was the variance greater than 2.5 StdDev.

Excluding recessionary years, Residential Building monthly spending exceeded 2 StdDev from the average only 10 times in 14 years, all 10 times were in the last 8 years.

Recessionary years really skew the data. Non-building Infrastructure was the only sector not affected by the recession like all other construction. Residential spending was affected the most. In the four residential recessionary years, 2006-2009, residential monthly spending (in 48 months) exceeded 2 StdDev 28 times, 19 of those times 3 StdDev or greater.

In the residential data set, 5 of the 10 non-recessionary variances over 2 StdDev were in 2018. That simply does not occur in the historical data. That’s like having your teenage son grow an inch every year from 13 to 16 but then shrinking 2 inches in year 17. The average of those 5 unusual months in 2018 was 3.5 StdDev from the statistical average, with Nov and Dec posting the greatest variances since 2009.

The only time we’ve ever seen data like that was within the recession years of 2006-2009. So, either the 2018 residential data is foretelling the beginning of another recession, or the data, particularly the Nov and Dec data, will be subject to significant revisions, in this case upward.

Starts and cash flow expectations seem to indicate the 2018 data is currently being reported too low. I expect 2018 residential data will be revised up by $10bil to $15bil. We may not have that information until July 1, 2019.



Construction Forecasting – Volume

Feb 26, 2019

Since the bottom of the construction recession year 2011, through 2018 construction spending has increased 67%. During that time construction volume has increased only 32%. All the rest was inflation.

Construction spending is not the only factor for business growth planning. The adjustment for Inflation is the most important factor.

If your company revenues are increasing at a rate of 7% per year at a time when construction inflation is 5%, your business volume is increasing only 2% per year. If you do not factor inflation into your growth projections, you are not forecasting growth properly. Spending is revenue. Volume is spending minus inflation.

Spend current vs constant 2018 2-26-19

Look at the data to the left of the vertical line through 2006. Notice in the bottom plot in the years 2004 and 2005 there is very high spending but very low volume. In 2006 spending was up 4% but real volume declined 3%. For those three years inflation totaled nearly 30%. On the top plot you can see the cumulative effect of several years of high inflation. From 2000 to 2006 spending increased 45% but volume barely moved at all. During this period jobs increased by about 15% and even that outpaced volume. Businesses watched as spending increased 45% in seven years. They increased staff by 15%, but real volume was flat. Heading into the recession construction dollars on the books had been increasing for years but volume was stagnant and companies were top-heavy with jobs.

Addressing the current period 2011 through 2018, if you base business growth on your annual revenue growth, or spending, rather than using inflation adjusted dollars, your forecast for business growth over this eight year time period would be more than double actual volume growth.

Notice the blue bars for annual spending growth in 2017 and 2018 at approximately 4% and 5% respectively. But look at the black lines superimposed on those bars that reflect real volume growth after inflation. There has been only 1% real volume growth in the last two years. Yet jobs increased 8% in two years. Most of the growth in spending is inflation dollars, not real volume growth. Inflation does not support jobs growth.

For 2017-2018 residential spending increased 17% but volume was up only 7%. Nonresidential buildings spending up 6.5% but volume was down 2.5%. Non-building infrastructure spending was up 4% but volume was down by 3%. Inflation across these sectors totaled 7% to 10% for these two years.

Construction jobs, now over 7,400,000 have been over 7,300,000 since summer 2018. The last time jobs were over 7,300,000 was mid-2005 through early 2008, at which point the recession abruptly caused the loss of over 700,000 jobs within 10 months and more than 2 million jobs over the next three years. Jobs are now only 5% lower than the previous high of 7,700,000 in 2006-2007. But construction volume is still 15% below peak constant $ volume reached in early 2006. So the current situation of jobs growth rate exceeding volume growth is worse than it was leading into the last recession.

For 2019 I expect residential and nonresidential buildings to experience a slight decline in volume. I do not yet see a recession as volume picks up again in 2020, but  nonresidential construction jobs in particularly have been increasing faster than volume for several years. Part of that is explained by some nonresidential workers are used to build residential space (hi-rise structure). When the next downturn hits, the potential need to cut nonresidential construction jobs may be quite painful.

Please Vote in Best Construction Blog Competition

Best Construction Blog voting begins 2-1-19 and continues through 3-31-19.

This blog, Construction Analytics – edzarenski . com, has been nominated for the 2019 Best Construction Blog competition.

In January, more than 8,000 visitors generated 17,000 views. The 2019 Economic Forecast Summary had more than 3,000 views and the Inflation Index Tables more than 4,000 views. This blog now gets more visitors and more views per month than I got per year when when I worked for and my reports were published and distributed by a major national construction firm. I believe that is because of the varied content being made available to the public.

There are a lot of readers out there accessing materials on this blog. That’s a lot of potential voters. I’m asking for your vote.

If you visit my blog because you find value in the construction economic news provided here, then please take a minute to visit the link below and vote for Construction Analytics. Thank you. Ed Zarenski


How to Use Construction Starts Data

New Construction Starts data is published monthly by Dodge Data and Analytics. Starts data captures a share of the total market or a portion of all construction, on average about 50% to 60% of all construction. Changes in sample size can introduce potential errors in forecast when using starts to predict construction spending.

In any survey, if sample size remains constant, let’s say at 50% of actual output, but survey response increases 5%/year, then that reflects output should increase at 5%/year. However, if survey response increases at 5%/year but sample size is increasing at 3%/year (50%, 53%, 56%, 59%, etc.) then actual output should increase at only 2%/year.

For a survey sample to be used to compare to itself from year to year to predict growth in spending, sample size must remain constant from year to year. If it is not constant, the apparent growth in starts does not all reflect real growth in spending.

It is impossible within a single year to verify if the current market share captured is constant with previous year sample size. The sample period of data is a year of new starts. To find out if the sample size is consistent, the sample must be compared to actual spending from starts from that period. Starts from any given year get spent over a period of the next 2 to 4 years. It takes several years to see the pattern of starts sample size versus actual spending. 

An average spending pattern for nonresidential buildings starts, OR A TYPICAL CASH FLOW CURVE, for any given year is: 20% of the revenue gets spent in the year started, 50% in the next year and 30% in the 3rd and 4th year. Multi-billion $ highway projects, manufacturing facilities, power projects and transportation terminals would have much longer duration cash flow curves. In other words, if you desire to predict construction spending in 2019, you need to know what starts were at a minimum in 2017 and 2018, and in many cases back to 2016 or even 2015.

2018 construction starts do not provide enough information to predict 2019 spending.

If starts survey sample size varies from year to year, it’s possible some of the spending growth anticipated from new starts may not represent growth in real volume of future work but could simply represent a change in sample size. Potential significant variations in sample size are seen in the data and may cause errors in the forecast.

Here are some examples. In the following table the line item “starts vs actual cash flow $” uses cash flow curves unique to each type of construction. For instance, in Office and Educational the spending curve is close to the average 20%/50%/30% as described above. That means 2015 starts is compared to a cash flow curve that spreads spending of 2015 starts over the next three years by 20%/50%/30%.

Starts vs Spending Cash Flow 3-2-19

In the Educational data we see it is unusual that Starts and Backlog continued to grow for five years but that same rate of growth was not reflected in actual spending. From 2013 to 2018 new starts increased more than 60% but spending for the period of those starts (97% gets spent between 2014-2020) increased only 30%. That would seem to indicate a very large volume of work is growing in backlog, and spending, at some point, should boom and remain high for an extended period. But the cash flow model is not in agreement.

A possible explanation is the sample survey of new starts has been increasing, so not all the starts growth for five years represents growth in new work. Some of the increase in starts is simply growth in sample size.

As evidence, Educational starts for the period 2012-2015 averaged just less than 50% sample size of actual total spending. In 2016-2018 the average sample size vs spending was over 60%.


Office Spending increased by 20%/year from 2013 to 2016, but in 2017 it turned to a 1% decline. That was unusual and unexpected since 2016 starts and 2017 backlog had both reached 10-year highs. Highly probable is that the sample size of starts increased dramatically in 2016 and the increase in starts was not all growth in real volume but was partially just a change in sample size, therefore the 2017 spending forecast may have been significantly overstated.

For the period 2011-2015 sample size increased from 45% to near 50% of actual total spending. In 2016, sample size jumped 25%! For 2016-2018 the average sample size vs spending was near 60%.


Transportation Terminals and Rail starts reached record high in 2017, both up 120% after a 35% increase in 2016. Starting Backlog increased 22% in 2017 then jumped 95% in 2018. Spending in 2018 is forecast to finish up more than 20%. However, Transportation sample size of new starts may have increased far more than any other market. Does it all represent a real increase in future spending or is this a good example of a change in sample size?

For the period 2011-2015 sample size increased from 25% to 30% of actual total spending. In 2016, sample size jumped to 40% of actual. In 2017 sample size jumped to 70%!

A large portion of the 2017 increase in starts is expected to be a change in sample size. Starts more than doubled from 2015 to 2017. If all that represented an increase in volume, spending would have doubled from 2016 to 2019. We already have actual spending in hand of more than half of 2017 starts and there is no possible outcome that shows the 125% increase in new starts in 2017 will produce an equivalent increase in spending. Most of the actual spending occurs in 2018 and 2019. For those two years, spending will be up 35%.


Office in 2016 posted a 31% increase in starts, mostly due to Hudson Yards and Vanderbilt Tower in NYC. This appears to have increased the annual share of market captured in the starts for 2016. Overall spending in the following years did not increase. Transportation starts in 2017 posted a 121% increase, but almost all of that can be attributed to an increase in market share captured due to $16 billion in starts for LaGuardia, Orlando and LAX airport work. In a year when several multi-billion $ projects start, the starts data share of market increases. This signifies a change in survey size, not an equally sizable increase in future construction spending.

Starts vs Spending Cash Flow 3-12-19

These examples show that starts share of market captured from year to year are not all consistent and therefore starts compared to previous year should not be used to predict spending directly but that starts sample size must be analyzed before using the data to forecast future spending. Construction Analytics models adjusted starts using unique cash flow curves to predict construction spending for the Economic Forecast published here.

Starts Modeling 3-7-19

%d bloggers like this: