12-10-19 updated 1-4-20

2020 Construction Forecast

Construction Spending for 2019 finishes flat for Nonresidential Buildings, Up 7% for Non-building Infrastructure and Down 5% for Residential.

Spending UNadjusted for inflation.

After adjusting for inflation, we see that real construction volume is down. Only Non-building Infrastructure realizes gains in 2019 & 2020. Nonresidential Buildings Volume has been up and down since Q1 2017. Residential volume has been declining since early 2018.

Volume, spending adjusted for inflation in Constant 2017$

I’m predicting Nonresidential Buildings will post declines in volume in 2020 & 2021. Residential gains 1% in 2020 but slips again in 2021. Non-building Infrastructure will increase at about 3%/year. Overall, total construction volume declined in 4 of the last 6 quarters and is forecast to drop slightly in 2 or 3 quarters in 2020.

Volume declines drive labor to slower growth. We had 6 years of 250,000-300,000 annual growth. Jobs will increase only 150,000 in 2019. In 2020, it could be lower to 100,000.

After 2006, and all the way to 2017, jobs and volume growth were pretty equal. Since 2017 there is a divergence forming. That can’t be sustained. 

Jobs vs Volume growth set to base 2006

See the Jobs analysis here Expect Construction Jobs Growth to Slow in 2020

The plot below shows the predicted spending from modeling Dodge data new construction starts. Overlaying this plot is the actual census spending. You can see the actual value follows pretty closely to the predicted. None of this data is adjusted for inflation.

Spending predicted from Dodge Starts and actual spending to date.

Healthcare and Office are strong markets in 2020, as well as Highway, Transportation and Public Works. Backlog is strongest for Non-building Infrastructure leading into 2021. In the three years since 2017, backlog in Transportation is up 80%, Environmental Public Works up 40%. Within nonresidential buildings, Office backlog is up 60%, Educational is up 15% and Healthcare up 25%. Commercial Retail is the only market with a decline in backlog over this  three year period, down 15%.

Table of Spending by Market Type. updated 1-4-20

A reminder, You can’t interpret new construction starts directly to backlog or spending. Starts growth is one thing, but starts data requires cash flow modeling to get spending. Why are Transportation starts for 2018+2019 down 35% but both 2019 and 2020 spending are up? Because in 2017, the year before the data in this table, starts were up 75% and much of that was very long duration work, some that potentially has peak spending 3 to 4 years out, so is still adding a boost to 2020 spending and backlog.

For more on the 2020 Forecast see these:

2020 Construction Forecast Briefs

Expect Construction Jobs Growth to Slow in 2020