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Construction – Brief Thoughts Dec’24
Construction spending in 2024 will hit near $2.15 trillion, another new high, up 50%+ since 2019. (The last time constr spending declined was 2011. Construction volume, (spending minus inflation) will finish the year up only 10% since 2019.
Construction Spending for OCT is up 0.4% mo/mo. Aug & Sep rvsd up ~1%/mo, mostly Rsdn. Spending now essentially flat for last 4mo. YTD’24 vs YTD’23 now +7.2%, falling slightly as expected for last few mo, because spending was rapidly increasing in late months of 2023 and is flat in 2024.
Real Manufacturing Construction Starts over last 3yrs is just over $600bil, whereas normal starts without any influx of government investment would be about $300bil for the same 3yrs. Most of those starts were posted from Q3’22 thru Q4’23. By far the highest period of growth in new starts was the 2nd half 2022. About $100bil of that spending growth over the 3 years is inflation, leaving the remainder of about $200bil in excess (but welcome) spending growth attributed to government investment in new manufacturing facilities. Now some of these projects are ending or soon to end. My latest construction spending forecast for 2025 Nonresidential Bldgs is down 0.5%. But this decline is driven by projects ending in Manufacturing. Without Manufacturing, Nonresidential Buildings 2025 spending would be up 4%.
The same effect on spending by the tapering off of Manufacturing Bldgs ending will happen in Infrastructure spending due to the current increases in Highway/Bridge, only ending a few years later.
Construction jobs increased to 8.313 mil in NOV. Since SEP, last two months barely increased, only +12k jobs. But perhaps more important, hours worked, since SEP, decreased 0.75%, equiv of 60k jobs. However, ytd’24 vs ytd’23, jobs are up 2.9%, total hrs worked is up only 2.7%
The unemployment rate in construction goes UP in the 1st qtr every year, by 2% to 3% (data here since 2011). Now, your 1st thought is that if unemployment is increasing, that is probably because jobs are falling. Well, construction has ADDED jobs in the 1st qtr. every year since 2011, by an avg of 24% of all jobs added annually, and more recently by over 30% of total annual jobs. Construction unemployment is not going up in winter months because we lose jobs in winter. It goes up because the entire workforce increases by greater than the number of jobs added.
To properly inflation adjust the cost of construction, use a Final Cost Inflation Index. General construction cost and Input price indices that don’t track whole bldg final cost do not capture the full cost of escalation in construction.
Will vacant office space to residential conversions be the construction spending that ignites the 2025 fire? Residential is forecast now to spring ahead 8% in 1H’25, then hold steady thru 2H. If conversions jump, that percent goes up and we could see a shortage of residential labor. (not addressing deportations).
There are 870K construction jobs in TX. 500K are immigrants and 300K are undocumented.
Sweet potatoes should be steamed only just soft enough to slice (long way preferred) about 1/2″ thick, then griddle fried in butter and maple syrup until there is some blackening (important). This was my dad’s recipe. No other recipes are allowed.
The Manufacturing Spending Taper
11-21-24 My construction spending forecast for 2025 Nonresidential Bldgs is down 1.5%. But this decline is driven by projects ending in Manufacturing. In the last 3 yrs, there were $230bil Mnfg new starts, most in 2022, about $130bil above normal for 3yrs. Now some are ending. Without Mnfg, Nonres Bldgs 2025 spending would be up 4.5%. (This original article written 11-21-24)
(edit 4-15-25 only to update forecast. Mnfg data has not changed) Construction spending for 2025 Nonres Bldgs is forecast up 2.9%. Manufacturing is expected to fall 9%, from $233bil in 2024 to $212bil in 2025. Mnfg is forecast to drop to $174bil in 2026. Without Mnfg data, Nonres Bldgs 2025 spending would be forecast up 8.2% in 2025. Tariffs and/or recession would (will) lower this forecast.
Now, let me clarify. The spending I reference is Census PIP current$ spending. It doesn’t matter if we look at current$ or constant$ (inflation adjusted), by the end of 2025 spending on Mnfg bldgs will be down 25%. The new starts above are those reported by a firm that tracks construction starts. But, only about 40% of actual starts are captured in that number. Real Mnfg starts over last 3yrs is just over $600bil, whereas normal starts without any influx of government investment would be about $300bil/3yrs. Most of those starts were posted from Q3’22 thru 2023. By far the highest period of new starts was the 2nd half 2022. About $100bil of that spending growth over the 3 years is inflation, leaving the remainder of about $200bil in excess (but welcome) spending growth attributed to government investment.
Mnfg projects can have a longer spending curve (on average) than most nonres bldgs, so obviously end dates are pushed out further. The average spending for all nonres bldgs is spread out over a spending curve of approximately 20:50:30, where 20% of all the starts in the year gets spent in the year started, 50% in the 2nd year and 30% over the 3rd and 4th yr. The spending curve for Mnfg is more like 17:40:30:13. We will see declining spending from this pool that will impact total nonres bldgs spending at least for the next 2-3 years.
So while the outward appearance in the data may be that nonres spending in total is declining, in large part it may be due to mega-spending on mnfg bldgs tapering down upon completion, creating large, but normal, annual declines. This may have the effect of offsetting gains in other nonres bldgs markets. That influx of spending is unlikely to be repeated. So, as we see mnfg spending begin to taper off, we should not expect additional support from new mnfg starts. We should expect mnfg starts to return to a more normal growth rate.
edited 2-4-25 added next paragraph and following Mnfg spending plot
Whenever we get an unusually large increase in new construction starts and spending, the tapering off of those projects leads to a decline on the tail end of the timeline. Peak spending was near the midpoint of projects, so after that it’s all declining. Mnfg new starts peaked in 2022-2023. Here’s what the manufacturing spending taper may look like.
edited 4-11-25 added Warehouse Plot and text
This is exactly what happened in Warehouse spending. Warehouse contract starts began to rise in 2020, but rose rapidly in 2021 and 2022. Therefore, the rate of spending began to rise in late 2020, then rose substantially from late 2021 well into 2022, when project spending would have been expected to peak. New starts began to fall back in 2023 and more-so in 2024. Peak spending was reached in Q1 2023 and spending has fallen in 18 of the last 24 months. The current rate of spending is now back to the level of 2021.
This same scenario will occur in Highway/Bridge. Normal starts have consistently been about $100bil/yr, with slow growth. But for the last 3 years, actual starts were closer to $500bil for the 3 years. This strong growth in starts is expected to continue at least into 2025, totaling near $650bil for 4 years. Again, consider that part of that is inflation, but the remainder is government investment growth. So a decline from the taper back to normal for Highway/Bridge may not show up at least for the next few years. But once the taper begins it will have the same effect on Nonbldg Infrastructure spending that we will see from Mnfg in Nonres Bldgs.
If you know in advance what to expect, there should be no surprises when it occurs.
PPI Data Sept’24
Once again, the Producer Price Index for construction materials is pretty tame with the release of the September data. For Q3, inputs to all types of construction post less than 1% growth for the quarter. This is now 6 or 7 quarters in which Inputs and Final Demand has been near 1% or lower.
Inputs year-to-date vs the 2023 average are up 1.9% for residential and up less than 1% for Nonresidential and Highway.
Individually, a few material inputs had notable moves in September: Lumber/Plywood up 1.1%, Steel Mill Products down 1.2%, Steel Pipe and Tube down 1.3%, Copper and Brass Shapes down 1.1% and Diesel down 14%.
Year-to-date, various concrete items are up 5% to 6%, Steel items are down 6% to 7%, Copper and Brass Shapes are up 6% and Diesel is down 13%.
Final Demand indices for 2024 are barely moving. Although Office and School are both up over 1% for Q3, no building type is up even a half percent when compared to the average of 2023. Roofing Trades are up 1.7% YTD. The average YTD for the four trades is up less than 1%. Over the last six months The only Final Demand indices to move more than 2% (for the full 6mo) were Office Bldgs and Electrical Trades.
SEE ALSO Construction Inflation 2024 – updated 7-12
Hurricanes & Residential Construction
Over the next few years there could be many billion$ of construction spending to “repair” hurricane damaged homes. That spending will NOT be reported in Census construction spending reports. According to Census definition, renovations to “repair” natural disaster damage are not recorded in construction spending.
Construction spending to “replace” homes entirely lost to hurricane damage (wiped completely off the foundation) IS reported in Census spending, but it is reported as renovations/repair, not new SF or MF construction. These are not “new” homes and do not add to the new home count. The work is to replace an existing home.
There will be billions$ of residential construction and the associated labor that will fall outside posted Census data. Some of that spending and labor will be diverted from the growth in residential construction tracked by the Census Rsdn$. So, it is conceivable that Census tracked residential spending could slip slightly from current projections, and yet the work is being done, only unaccounted for.
(All of this is true also for nonresidential).
Expect increased demand and potentially longer waits for all residential building products; lumber, doors, windows, roofing, siding, drywall, flooring, HVAC, plumbing, electrical and appliances, primarily or exclusively in the affected regions.
If your business is in a region that is currently outside the affected region and slow for residential construction, consider that anybody with a hammer and a pick-up truck may be traveling to the affected regions to work. That could mean that many slow regions may lose some available labor, as the labor will move to the affected area.
For every $1billion of work needed to replace damaged buildings it requires 4000-5000 construction workers for one year. That could also be stated as 1000 jobs for 4 to 5 years. Very early damage projections due to Helene and Milton range from $50-$175 billion, but not all of that is construction. If even $10 billion of work is construction to repair/replace damaged buildings, that would require 10,000 jobs for a period of 4 to 5 years (or 20,000 jobs for 2 to 2 1/2 years).
Construction Data JULY Briefs 9-5-24
Construction spending 2024 through July is still on track to finish the year up 7.7%. Residential is forecast up 8.5%, Nonresidential Buildings up 6.0% and Non-building up 8.9%.
We still have 3 or 4 more months of slightly declining construction spending, driven mostly by residential, but also by Manufacturing. This is not a long term trend. Sit tight. Oct or Nov, trend tuns back up. You can see the dip in this Current $ spending plot.
Construction spending total for 2024 expected up 7.7%. With inflation at a 4yr low (3%-4%), the amount of spending that is real volume growth is up this year, highest since 2016. It just edge out 2020.
I’m forecasting residential construction spending total for 2024 at $952b ,+8.5%. But three other indicators I calculate to compare to my forecast are telling me it could come in between $960b and $970b. I’m leaning towards higher, but I’d like to see Aug data, and Sept data.
And then there’s this. Census SAAR avg YTD (the average of the reported rsdn monthly SAAR for the 1st 7 months) is $939b. My YTD SAAR avg is $964b. Some down months will lower that slightly by year-end. .
Statistically, YTD spending through July for Rsdn and Nonres Bldgs is 57% of the total annual $ spent. This is indicating year-end total $ for residential will be $963b and $744b for Nonres Bldgs.
JOBS REPORT
Jobs are up by 34,000, 0.4%, in August, up by 80,000 in the last 4 mo., for a total up 1%/4mo. Year-to-date construction jobs are up 160,000 or 2%. Of those, 100,000 were for Nonresidential Buildings. Typical growth is 3.5%/year or about 250,000 to 300,000 jobs/year.
In this last month volume fell 1%. In the last 3 months, business volume fell 2.5%. Volume is falling and jobs are still increasing. There will be a slow patch for the next few months where volume will still fall another 1% to 2%. But jobs did not fall recently, and I don’t expect jobs to fall in the next few months.
The plot above from Jan2020 to Jan2026 is just enlarged view from this plot below, which shows how consistent jobs growth has been over the last 14 years. After the 2020 dip, the slope of jobs growth is about the same as Jan2011-Jan2020.
These next three plots break out the major sectors.
Can We Increase Residential Construction by 3 Million Units in 4 Years?
Here’s a look at the residential construction industry. Except for the first mention of Current $, All $ in this analysis are inflation adjusted Constant 2019$, so all years can be compared on equal terms. All numbers are rounded slightly.
Currently in 2024 $, residential construction spending is $940 billion/year, 43% of all construction. Only 60% of that ($560 billion) is spending on new housing units. The other 40% is Reno.
Currently for 2024, residential construction supports 3,350,000 jobs. Only 60% of the jobs (2,000,000) are for new units.
30 years ago residential construction spending was $550 billion/year and there were 2,200,000 jobs. On average over 30 years (including all up or down years) we’ve added $14 billion/year in spending and 38,000 jobs per year.
The 30 year (1995-2024) average growth in residential spending, counting only 21 up years, (eliminating all 9 down years) is +$36 billion/year. There were 2 years that we added +$70 billion/year in spending (one of those in 2021) and including those, there were only 7 years over +$50 billion/year.
The 30 year (1995-2024) average growth in residential jobs, counting only 21 up years, (eliminating down years) is +125,000 jobs/year. In 1999, we added 270,000 residential jobs. Since 2011, the most we’ve added in a year is 170,000 jobs in 2021. That’s for ALL residential construction.
In 30 years, we’ve never added more than $70 billion/year in residential construction spending nor more than 270,000 residential jobs in a year. Since 2011, the most residential spending increased was $70 billion in a year and the most residential jobs increased was 170,000 jobs in a year, both in 2021.
Only 60% of all residential spending and jobs is associated with building new housing units. The other 40% is renovations, not associated with new construction. That must be considered when reviewing all the historical data noted above. So the following is just to look at the data without renovation.
Reduce the data by 40% to eliminate spending and jobs associated with renovation and look at just the data associated with building new housing units: In 30 years, we’ve never added more than $40 billion/year (2004,2021) in residential construction spending on new units nor more than 160,000 residential jobs in a year (1999,2005). This is for New Units construction only.
Since 2011, the most spending increased for new units was $40 billion in a year (in Constant 2019$) and the most jobs increased was 100,000 residential jobs, both in 2021.
The last time residential jobs for new units increased by 100,000 or more in a year was 2005. Best growth ever was 2004-2005-2006, when we averaged +120,000 jobs/yr for 3 years, just for new units. In fact, the only times residential jobs for new units increased by more than 100,000 were 1999, 2004, 2005 and then finally again in 2021. But 2004-2006 was a time when the construction unemployment rate averaged 7.5%-8.5%. In 2021, construction unemployment averaged 6%. Now the unemployment rate is averaging 4.5%.
(It would be wise to use post-2011 data for the jobs analysis. The construction industry, especially residential and nonres bldgs, experienced a labor base reset in the period 2006-2010, a period from which we have never fully recovered. Notice in this plot that residential was nearly level at 4000 for 10 years, then from 2005-2009, it shot up to over 5000. It’s remained near 5000 since 2010.).
If we were to match the maximum growth rates since 2011 (and in the case of spending, since 1994) we would increase new residential units construction spending by $40bil/$390bil = 10% and we would increase new residential jobs by 100,000/2,000,000 = 5%. Spending maxed at 10%, but jobs max growth at 5%.
The number of new housing units built in a year varies, but for this post I’ll use 1,500,000. Currently it’s a bit less than that. Increasing new units by 5% to 10% per year on a base of 1.5 million units/year would net a growth between 75,000 to 150,000 added units per year. Let’s use 100,000 new units in the first year. That would be 6.7% growth, already more than the 5% jobs. We would continue the growth, so we increase that by another 100,000 in the 2nd year, and again in the 3rd and 4th years. Leave no doubt, growth of 100,000 units/yr would mean adding jobs to match or exceed the best single-year growth rate in the residential new units construction industry since 2005, and keep matching that growth rate for four consecutive years.
CORRECTION: 8-21-24 The Corrections (now fixed) above raise the upper limit of potential growth based on spending from 7% to 10%, or 150,000 units/yr, but only if we take the result to be dependant on the upper limit % spending growth. I had divided by current $ when I should divide by constant $. Spending can vary a lot more than jobs. While some years of jobs growth reach 6%-7%, average residential jobs growth is just over 4%. Jobs never grow at 10%/year.
This plot shows the steady growth in residential jobs, 75% over 15 years. Compounded that’s about 4%/yr. So, it seems much more likely the limiting factor here is jobs, not spending.
In this analysis, the number of units was chosen at 100,000/yr., an increase of 6.7%/yr., well below potential spending growth but already more than jobs growth. The jobs increase in 2021 was 5%/yr. In 2004-2005, jobs growth was 8%/yr. So, this 6.7% is near the high end of potential jobs growth. This implies an add of 130,000 jobs.
So we would increase new units by 100,000 + 200,000 + 300,000 + 400,000 or 1,000,000 total new affordable residential units over the next 4 years.
By this rough analysis, to increase new residential units by 3 million over current production over the next 4 years would require that we increase residential construction and jobs by 3x greater than the best performance achieved in the construction industry in the last 30 years, and keep it up for the next 4 consecutive years. That’s more jobs than the entire construction industry gains in one year and the new units subset of construction is only 25% of all construction.
Although there has been times past when jobs increased by 120,000/year, that was a time when unemployment was much higher and there were more workers available to readily go back into the workforce. It’s not impossible that jobs can grow faster, and therefore also the number of new units, but it is unlikely.
If a substantial portion of the current 1,500,000 unit production (500,000 units a year for the next 4 years) were shifted over to affordable units, the picture changes considerably. But I wouldn’t expect that current demand to just go away and shift to lower cost units. So, this leaves current demand as is and adds jobs.
A Proposal: If some amount of the funds to be invested in this program is directed towards trades training programs, within two years, and every year after, we could potentially be turning out some of the extra 260,000 additional workers we would need every year to achieve 3 million new housing units. This approach would create both good jobs and new affordable homes. Incentivize the training program somehow. Paid internship. Perhaps with a guarantee in return to work for 2-3yrs. If we don’t invest in training workers for this effort, we cannot build more than the labor we have. Here’s a thread on my training proposal. https://x.com/EdZarenski/status/1828778915055468816
Construction Inflation Tame in July PPI
With the PPI release on Aug 13, for July data, we see both Inputs and Final Demand year-to-date (YTD) tempered considerably. Inputs since December are up only 1% to 2%. Final Demand is up less than 1% YTD.
PPI Inputs averaged for Nonres Bldgs, Residential and Highway, have all been at +1% or lower since Q3 2022. Inputs do not track final cost. No labor or Margins. Inputs can be at very different stages of manufacture and can include a variety of products. For instance Fabricated Structural Steel has been ordered from the mill and includes detailing and fabrication, ready to deliver to the jobsite, whereas Steel Mill Products has not yet been fabricated to any end-user details and in fact includes all types of steel, which would include sheet steel used for manufacture of automobiles and appliances.
Construction Inflation per PPI Final Demand has been at -1% to +1% since Q2 2023. A number of independent firms report Nonres Bldgs inflation at 3% to 4%. I’m tracking at 3.1%.
Turner Index is up 1.9% for the first two quarters of 2024. That is up 3.5% from the average of 2023. RLB is up 2.4% since December and that is up 4.6% from the average of 2023. The U.S. Census New Homes index is up less than 1% since December but that is up 2.8% from the average index in 2023. These are all final cost indices.
Construction Data MAY Briefs 7-1-24
With the July 1 release every year, Census issues spending revisions to prior years, in this case to 2022 and 2023.
For 2022, Census added +$54bil (3%), mostly to Nonres Bldgs. The largest revisions in 2022 are Comm/Rtl +$10bil (+8%), Mnfg +$10bil (+8%), Power +$12bil (+11%).
For 2023, Census added +$44bil (+2%). The largest revisions are Comm/Rtl +$10bil (+7%), Amuse/Rec +$4bil (+11%) and Power +$12bil (+9%).
Along with 2022 and 2023, Census also revised Jan-Apr 2024. For the first four months of 2024, Census added +$14bil (2.2%), mostly to Residential +$7bil (+2.6%) and Power +$4bil (+8.4%).
Overall, total construction spending, including the May data for 2024, is now forecast +8.5% over 2023. With the upward revisions to Jan-Apr, Rsdn spending forecast is now +7.7% for 2024. Nonres Bldgs (+6.9%) and Nonbldg (12.7%) growth over 2023 is down from prior forecasts not because 2024 spending went down, but because 2023 revisions were higher.
Compare this forecast to the forecasts issued in July in the AIA Consensus Construction Forecast.
From 2012 to 2024, construction spending has been up every year, averaging +8.2%/year. It’s been as low as +4% and as high as +15% in that time. Well, after taking out inflation, construction volume of business really increased only on average +3.2%/year. The low years were +0.2% to -0.2%. The highs were 2014 and 2015 when volume increased +7% and +9%. All other years were +5% or lower. The table below shows the percent volume growth for recent history and forecast.
So far, through May, the inflation rate for all building types is much lower than most of the recent years. All inflation at this point is projected to finish 2024 between 3.5% and 5%. 2024 spending in constant$ will be the highest rate of volume growth since 2020. Keep in mind, the Constant$ in the table above (and in all the plots below) represents 2019$. If reported in 2024$, then 2024 would be constant and all total annual dollars would be higher. The percent Constant$ change from year to year would not change.
While the first 5 months of 2024 show no new highs for residential starts, the average of the first five months is higher than the average for 2023. Starts in 2022 still hold the highest monthly and highest annual average for residential starts.
The jobs plots below show a steady rate of growth in jobs before the spike down, as well as after. It’s just that the pattern was delayed for two years until jobs caught back up to where they were. Jobs move somewhat independent of the volume of work being put-in-place, at a very steady long term growth rate.
Since 2011, jobs have increased at an average of 3.3%/yr., several times reaching 4%/yr., seldom hitting 5%/yr. In the last 12 months jobs are up 3.6%. Year-to-date jobs are up 1.5% for the 1st six months.
This enlarges the 2020-2025 portion of the plot above. Volume growth has spent much of the last three years still lower than needed to balance with jobs growth, but has made rapid recent gains. But look at the Volume plot, down midyear in 21, 22 and 23. My data file shows the next 4-5 month, a stall in spending, but we are at all-time highs, (so, it doesn’t hurt much) then followed by 15 months of growth.
JOBS Year-to-date:
- Residential jobs are up 1.0%. Volume is up 6.4%
- Nonres Bldgs jobs are up 2.0%. Volume is up 1%.
- Non-Bldg jobs are up 1.4%. Volume is up 1.3%
- Total all construction jobs is up YTD 1.5%. Volume is up 3.3%
JOBS In the last 12 months and last 24 months:
- Residential jobs are up 2.6%. Volume is up 4.1%. Over two years, jobs are up 4.4% while volume is up 6.9%.
- Nonres Bldgs jobs are up 4.8%. Volume is up only 0.4%. But look back over two years and jobs are up 8% while volume is up 18%.
- Non-Building jobs are up 3.1%. Volume is up 2.9%. Over two years, jobs are up 6.9% while volume is up 12%.
JOBS Since the onset of the Pandemic (May 2024 compared to Dec 2019):
- Residential jobs are up 15.0%. Volume is up 13.4%
- Nonres Bldgs jobs are up 5.4%. Volume is up 10.6%.
- Non-Bldg jobs are up 6.0%. Volume is down 5.8%
- Total Construction Jobs are up 9.2%. Total Volume is up 7.6%.
Non-Bldg Infrastructure volume is forecast to increase 10% in the next 12 months. Nonresidential Bldgs volume expected to increase 1.7%. Residential expected to increase 1.0%. I expect total volume to increase by 4% to 4.5% in 2024, I expect total construction jobs to increase about 3.5% to 4% in 2024. Total jobs through June are up 1.5%.
Construction Analytics 1,000,000th view, Apr data Briefs 6-10-24
Updates to Forecast, spending, starts, inflation, jobs will follow next few days, so revisit this post for Apr data updates.
SEE ALSO Construction Analytics Outlook 2024
Today, 6-10-24, this blog recorded the 1,000,000 view. That doesn’t count scrolling from the home page, where a visitor might scroll down to read 3 or 4 articles, and there are 500 landings on the home page every week. So, the counter hit 1,000,000 but including scrolling, the actual total views could be higher. Nearly 500,000 people read on average 2.1 articles every visit. Inflation articles draw the most attention, with a read rate of about 1000 times a week on a slow week and 2,000 on a busy week.
Thank you to all my visitors, and to the 1,000,000th viewer. Keep reading! edz
April construction data update
Total construction spending for 2024 is forecast up 9%, down slightly since last update. Residential was reduced, expect now only +4%. Nothing else changed much. Nonres Bldgs forecast up 11%. Nonbuilding up 15%.
Jobs growth from May’23 thru May’24: Total Jobs +3.2%; Nonres Bldgs + 4.7%; Nonbldg Infra +3.6%; Residential +2.9%. In all cases most of the growth was in 2023.
Residential construction spending cash flows indicate a drop of 4% over the next 6 months, but then a slow steady climb of +10% in the following 12 months.
Nonresidential Buildings construction spending cash flows indicate we have settled in a temp flat top for the next 6 months, down 2% from the Feb’24 peak. Then we get a 5% annual rate of increase for the next two years.
Non-building Infrastructure cash flows are not showing any monthly pullback for the next two years. Spending adds 8% from now until year end and then adds 10% in 2025.
Baseline Spending Adjusted to Constant 2019$
Since the end of 2019, (in Dec 2019 spending hit $1,464T) total construction spending as of APR’24 is up 46%. The real Volume of Business is spending minus inflation. Inflation adds nothing to the volume of business. After inflation, Volume is up only 6%. Total jobs are up 9%.
Since the end of 2019, Residential volume is up 7%. Rsdn jobs are up 15%. Nonres Bldgs Volume is up 12%. Nonres Bldgs jobs are up 5%. Nonbuilding volume is down 8%. Nonbldg jobs are up 5%.
A follower commented to me they thought total adjusted spending would be higher. At the time, we were referencing Constant2019$. When we set base year to 2024, all other years would be compared in Constant2024$. All years would appear higher, but the percent change yr/yr would be the same. Here’s the same data as the table above, except the Index year has been changed to Constant 2024$.
Baseline Spending Adjusted to Constant 2024$
Nonresidential Bldgs volume (spending after adjusting for inflation), increased 28% in the last 18 months. Nonres Bldgs jobs increased only 7%, and hours worked (OT) did not increase. That leaves 21% of Nonres Bldgs volume that was put-in-place without a balancing increase in jobs. The added work got absorbed into the existing workforce. That’s a very hard fact left unexplained by the argument that there are jobs shortages. As one reader commented, there are some reasons why more $ value of work is counted at the jobsite with less jobs, i.e., prefab, but not 21% of all Nonres Bldgs work.
This plot below removes spending, shows a better scale comparison of Jobs to Volume.
The above plot is taken from this 2011-2025 plot below. Looking back to 2011 shows how consistent jobs and volume growth was from 2011 thru 2019. This plot shows Construction Jobs growth since mid-2020 occurring at the same slope (rate of growth) as 2011-2019. Construction jobs grow avg 3.5%/year, even if volume growth varies. The Pandemic set jobs growth back by almost 2 years.
The next three plots Jobs vs Volume Growth, are set to zero start at Dec 2019. Last month, MAR data, I showed these same plots going back to start Jan 2011. Here’s a link to Mar data for those 2011 plots.
I’ve recently read comments on Twitter X that a slowdown in new residential starts is causing a drop in residential employment, and that leads a recession. Well, residential jobs are up 1% year-to-date, up 2.5% from May’23 to May’24, and right in line with average jobs growth since 2011. There is a slowdown in the rate of growth of constant $ volume. Although May starts are the lowest since November, that slowdown from May to December is only 3.5%. This may not be a big enough drop in volume to initiate a drop in jobs. We’ve seen other years (2018) where a small volume drop is not followed by a drop in jobs and never does the drop in jobs equal the magnitude of the drop in volume.
Construction Data MAR Briefs 5-5-24
Updates to Forecast, spending, starts, inflation, jobs
SEE ALSO Construction Analytics Outlook 2024
A side note, before I begin with the economic data, sometime within the next few weeks, I expect by May 31st, this blog will record the 1,000,000 view. Nearly 500,000 people read on average 2.1 articles every visit. Inflation articles draw the most attention, with a read rate of about 1000 times a week on a slow week and 2,000 on a busy week. Thank you to all my visitors. Keep reading!
2024 construction spending will be measured to the avg of 2023, $1980 bil. The average Seasonally Adjusted Annual Rate (SAAR) for 2023 is the total spending for 2023, but is was lower in Jan and higher by Dec. By Dec the SAAR was already 6% higher than the average for 2023. So we began 2024 with Dec spending at a SAAR 6% above avg 2023.
As of MAR, the total SAAR is 8.1% above 2023. Rsdn is +5.4%, Nonres Bldgs +10.0%, Nonbldg +10.8%. If growth stalls at the current level for the rest of the year, meaning, if we were to end the year with the SAAR unchanged from today, then we would finish with these gains for 2024. The trend in most cases is up, so I expect end of year we will be a little higher than today.
5-24-24 Construction Starts $. Even though Nov and Mar were low, the last 9 months of Nonresidential Bldgs new starts $ was by far the 2nd strongest period of new Nonres Bldgs starts on record, averaging an annual rate (SAAR) of $435 bil. Best since 2nd half 2022 (avg $490 bil.). The last 9 months of Residential $ starts (annual avg $395 bil.) was the best since 1st half 2022 (avg. $438 bil.).
2024 construction spending for Nonres Bldgs, as of MAR, measured to the 2023 avg, is now up +10.0% and trending up. We began 2024 with Nonres Bldgs Dec spending at a SAAR 6% above avg 2023. The American Institute of Architects (AIA) Consensus for Nonres Bldgs, published at the beginning of the year, averages +4% growth over 2023. Only one of the 10 forecasts for Nonres Bldgs spending in the AIA 2024 Consensus is still above the current reading. So, I think it’s safe to say, the AIA Consensus was low right from the very start.
The trend in Nonres Bldgs construction spending is up 18 of the last 19 months and continues up for the next 12 months. To fall to the AIA Consensus average of +4% for the year from the current SAAR, up +10.0%, the remaining 9 months of 2024 would need to fall from the current +10% to average only +2% higher than 2023. It may not be apparent, but that is a continuous decline of more than 1.5% every month for the next 9 months. That’s like falling off a cliff next month and not being able to get up. That’s unrealistic. Unless something sets off a deep recession similar to 2009, that will not happen.
At the beginning of 2007-2010, the first sign of recession for construction was a decline in 2007 of 25% in residential starts. Then in 2008 residential starts fell 40%. In 2009, both residential starts and nonresidential buildings starts fell 30%. Nonbuilding starts fell only 6%. By 2010 starts were increasing. But spending lags starts. Residential spending fell 60% from 2006 to 2009. Nonresidential buildings spending fell 33% from 2008 to 2010.
Although nonres bldgs starts fell 18% in 2020 and residential starts fell 11% in 2023, neither led to a devastating drop in spending as recovery occurred quickly. There is nothing in the current outlook to indicate recession, on any horizon. This forecast does not anticipate a recession.
Since the end of 2019, (in Dec 2019 spending hit $1,464T) total construction spending as of MAR’24 is up 46%. After inflation, Volume is up only 6%. The real Volume of Business is spending minus inflation. More than 85% of the spending growth since Dec. 2019 is inflation. If current projections hold, the total business volume through year 2024 will have grown 10% since 2019. ALL business plan forecasts and labor demand should be based on this 10% growth. Inflation adds nothing to business volume.
Over the last 9 months, residential new starts (as reported by Dodge) averaged the highest since the peak high in the 1st half of 2022. For Q1’2024, residential starts are 27% higher than Q1’2023. Currently, residential starts for 2024 are averaging 8% higher than the total in 2023. Residential spending peaked at an all-time high in Q2’22. Spending has been level or increasing the last few months at a rate 6.5% lower than the peak, but at a rate 55% higher than Dec 2019. Due to the short durations in residential building, fluctuations in starts are more quickly apparent in spending. Expect both nominal and real (inflation adjusted) spending to continue increasing thru the 1st half 2024, then drop back slightly in the 2nd half 2024. Spending is expected to increase 7% in 2024 over 2023. Volume after inflation should grow 3%.
Single Family spending YTD through Mar. is up 16% from Q1’2023. Single Family rate of spending through Mar. is up 11% over the average (total) spending in 2023. Multi-family spending for Q1’24 is up 6% from Q1’23 and is 2.5% lower than peak spending in Aug ’23, however it’s still up 1% over the avg spending in 2023. These are all nominal values, so real growth is lower. But residential inflation for 2023 was only 3%, so not much lower.
An avg spending curve for long-duration Non-bldg Infra is 15:30:30:20:5. The greatest spending impact does not show up until year two and three after the year in which the projects start. Example: If 2024 posts $100bil in new starts for Infrastructure, only $15bil of that gets put-in-place in 2024. $30bil would get put-in-place in 2025 and 2026.
Plots below compare volume growth to jobs growth. Notice the slope of the increase in jobs is fairly constant, regardless of changes in volume growth.
In the past 18 months, Nonresidential Buildings construction spending increased 37%. Nonres Bldgs JOBS increased only 7%. Normally, this would be explained by inflation, but in this case after adjusting for inflation volume still increased 28%. 18 months, +28% volume, +7% jobs.
Jobs and volume of work should be moving together, evenly. The construction industry has been saying jobs shortages, and yet over an 18mo period, the nonresidential bldgs sector added 20% more volume of work than added jobs. Seems to me that would indicate that volume was absorbed by existing jobs. If there were a significant jobs shortage, either the existing crew would need to work overtime, hours worked would have increased, or the work would not have been put-in-place and would potentially have been delayed or postponed. Neither happened. The fact that the work was put-in-place would indicate that the existing workforce readily absorbed the excess workload.
Since 2016, TOTAL construction spending has increased 63%, but after inflation, business volume increased only 6%, or 1%/yr. From 2016 to 2023, jobs increased 2.5%/yr. When jobs are increasing at a greater rate than the volume of work, productivity is declining. That is shown on these plots when the jobs line is above the volume of work line. Volume and jobs should be moving together.
In 2024, construction volume may increase 6%. Don’t expect jobs to increase 6%.
Since 1980, the fastest rates of growth in construction jobs were 1983-85 avg 6.0%/yr. and 1994-99 at 5.4%/yr. All other plus years averaged +3.2%, with only six years above 4%.
Since 2000, (excluding negative yrs, all associated with recessions) construction jobs growth is 3.3%/yr. and average real volume growth is 3.4%. I would expect future jobs growth to remain within the historical averages, somewhere in the 3%-5% range.
Construction Analytics 