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What Are You Reading 2016

Thank you to all my readers for making this construction economics blog worthwhile. Here’s ten of my most visited articles in 2016.

Construction Cost Inflation – Midyear Report 2016

Construction Inflation Indices

Trump’s Wall

Starts Point to Robust 2017 Spending

June Jobs Report Construction

Construction Spending 2016 – Midyear Nonresidential Markets

Construction Spending 2016 – Midyear Summary

How Much Does A Steel Cost Increase Affect Construction?

Saturday Morning Thinking Out Loud #1 – Infrastructure

Behind The Headlines – Construction Data

Construction Spending 2016 – Midyear Summary

Summary 2016 Construction Spending


Total Construction Spending for July reached a seasonally adjusted annual rate (SAAR) of $1.15 trillion, level with June which was revised upwards by $20 billion or nearly +1.8%. Monthly spending always gets revised in subsequent months. This year every month but May, which remained nearly unchanged, has been revised upwards, by an average of +1.4% and as much as 3.4%. Monthly values are subject to revision for two months after the first release and once again in May of the following year.

This plot, Construction Spending vs New Starts Cash Flows, shows actual spending (SAAR) by sector through July 2016 and projected trends of spending out to July 2017.


Previously I wrote that we should expect a short duration downturn in spending occurring between January and March. The expected monthly spending cash flows that would be generated from uneven new starts over the last two years indicated that a slowdown in spending would occur during the first quarter 2016. As it turns out, first quarter spending was much stronger than expected, averaging $1.17 trillion SAAR, primarily due to outstanding results in February and March for residential spending. But then April and May experienced significant declines, dropping to an average of only $1.14 trillion SAAR, down almost 3% from Q1. Now with June and July spending both up 1% from the April and May lows, it looks like we may be past that short duration downturn.

Total Construction Spending year-to-date (YTD) through July is up 5.6% over the same seven months 2015. Spending slowed in April and May from a 1st quarter average of $1.17 trillion that reached close to a 10 year high and falls just 4% short of the all-time high. However, it must be noted, that compares unadjusted current dollars, values of all dollars current in the year spent.

When comparing inflation adjusted constant dollars, all dollars adjusted to the same point in time, we can see 2016 spending is still 18% below the 2006 highs.


Total spending YTD through July is slightly ahead of what I predicted back in December, but it’s slightly below what I expected for May, June and July . I expect 2nd half spending to average above $1.2 trillion SAAR, but slightly lower than I originally forecast.

I’ve revised my 2016 spending forecast down slightly to total $1.190 trillion, up 7% from $1.112 trillion in 2015.

How does actual spending YTD compare to my prediction at the beginning of the year?

  • Total predicted YTD through July $638.2b,  actual YTD $647.7b (+$9.5bil, +1.5%).
  • Residential predicted YTD $245.1b,  actual YTD $259.2b (+$14.1bil, +5.8%).
  • Nonresidential Bldgs predicted YTD $236.9b,  actual YTD $228.1b (-$8.8bil, -3.7%).
  • Non-building Infrastr predicted YTD $156.2b,  actual YTD $160.5b (+$4.3bil, +2.8%).

Where are the revisions?

The single largest reduction in spending is in Nonresidential Buildings Manufacturing. Although there are other variances, that could account for the entire revision downward. Predicted construction starts for Manufacturing was lowered by nearly 35% after the initial start-of-year forecast was made.

Non-building Infrastructure spending increase is being supported by a 20%+ increase in power, which I didn’t expect. New starts for power projects have increased more than 20% since the initial forecast.

Residential construction had unusually large gains in February and March, almost all of that in residential renovations, offset only partially in April through July by declines mostly in new single-family housing.

Here’s my revised 2016 spending forecast based on YTD spending and new construction starts through July, compared to my prediction in December 2015.

  • Total predicted Dec 2015 $1,206.2b,   July 2016 $1,189.9b (-$16.3bil, -1.4%).
  • Residential predicted Dec 2015 $473.8b,   July 2016 $481.8b (+$8.0bil, +1.7%).
  • Nonresdntl Bldgs predicted Dec 2015 $439.2b,   July 2016 $410.9b (-$28.3bil, -6.4%).
  • Non-bldg Infrastr predicted Dec 2015 $293.2b,   July 2016 $297.3b (+$4.1bil, +1.4%).

Spending and construction starts are often confused by some analysts who refer to starts data as spending. Starts represent total project value recorded in the month the project begins. To determine spending activity, starts values must be spread out over the duration of the projects. Spending is dependent on cash flows each month generated from all previous construction starts. Cash flows expected based on Dodge Data construction starts are indicating a return to growth in spending in the 2nd half 2016. (See chart above Index Actual Construction Spending vs New Starts Cashflows).


Spending Breakout by Sector

Residential  construction spending for July totaled a SAAR of $452 billion, remaining near level for the last four months. Residential spending YTD through July is up 6.5% over 2015. Spending slowed in April and May from a very strong 1st quarter average that reached close to a 10 year high. The current 3-month average is just 1% below the 1st quarter and is still at its highest since the 2nd half of 2007 but is 10% below the current dollar all-time high in 2006. I’m still expecting some upward revisions to June or July residential spending.

Residential spending just experienced the strongest three-year stretch of spending growth on record, up 60% in 2013-2014-2015. After taking out inflation, volume growth was only 31%, but that is still the strongest ever for three consecutive years. Spending growth in 2016 will reach only +9%. After adjusting for inflation that represents volume growth of less than +4%, the slowest in 5 years. New starts YTD (as reported by Dodge Data) although down from the 1st quarter, are still near post-recession highs. Starts from late 2015 and early 2016 will still be generating spending into early 2017. 2017 will repeat nearly identical to 2016. What we may be seeing is that it might be difficult to register another year of very high percentage growth in 2016 or 2017 because it is being measured against the 2015 10-year high. Another factor limiting very high growth may be a limited supply of labor to expand the workforce.

Total Nonresidential SAAR spending for July is $701 billion, down slightly from June, but monthly SAAR has varied only +/- 1% for the last six months. YTD spending compared to 2015 is up 5.1%. Nonresidential spending also slowed in April and May but is now up 1.5% from those lows. The current 3-month average is up slightly from the 1st quarter and is just 3% below the pre-recession 2008 current dollar high.

Nonresidential Buildings spending for July totaled a SAAR of $403 billion, down slightly from June but up 1.3% from the May dip. Spending YTD for nonresidential buildings through July is up 8.0% over 2015. The current 3-month average of $403 billion is up slightly from the 1st quarter but is still 9% below the peak in 2008.

Non-building Infrastructure spending for July fell to a SAAR of $289 billion, down only slightly over for the last four months. YTD spending through July is up only 1.3% over 2015. Spending began to slow in April and May and is now at the 2016 low. The current 3-month average is down 4% from the 1st quarter. However, spending on nonbuilding infrastructure reached an all-time high in the first half of 2014 and has remained near those highs through 2015 into the 1st quarter of 2016.


Public spending average for the 1st six months of 2016 is the highest since 2010 and is up 10% from the 2014 low point. YTD public spending is up 0.2% from 2015. All of Highway plus 80% of Educational makes up 55% of all public construction spending. The next largest markets, all of Sewage/Wastewater plus 70% of Transportation accounts for only 19% of public sending. All other markets combined make up less than 20%.

The biggest mover to total public spending this year is educational spending. Public educational spending is up only 4.0% YTD, but because it represents almost 25% of all public spending, it’s has a bigger net impact of +1.0% on moving the trend up than any other single public market. Public commercial spending is up 36.6% YTD but has only a 1% market share of public work. Highway and street is up 2.6% YTD. At 30% of total public that results in a net move of +0.8%. Office, public safety, power, sewage/waste disposal and water supply are all down YTD by a combined -5.3%. At a combined market share of 21% that nets a -1.1% reduction in YTD public spending.

Private spending is dominated by a 52% market share of residential work. At 6.6% growth that nets 3.4% growth in private spending. Several of the nonresidential building markets have high YTD growth (and/or a large market share of private work); lodging +30%, office +27%, Amusement +22%, commercial +10% and power +8%.  These five markets combined represent 29% of private spending and combined are up +15% YTD for a net impact of +4.4% to private work.

For a base of reference, here’s a few points in spending history.

Total Construction Spending

  • 8 years 1998-2005 up 77%
  • 3 years 2003-2005 up 32%
  • 3 years 2008-2010 down 30%
  • 4 years 2012-2015 up 41%


  • 8 years 1998-2005 up 133%
  • 3 years 2003-2005 up 57%
  • 3 years 2007-2009 down 60%
  • 3 years 2013-2015 up 60%

Nonresidential Buildings

  • 5 years 2004-2008 up 64%
  • 3 years 2006-2008 up 45%
  • 3 years 2009-2011 down 36%
  • 2 years 2014-2015 up 25%

Non-building Infrastructure

  • 7 years 1995-2001 up 56%
  • 4 years 2005-2008 up 60%
  • 3 years 2009-2011 down 8%
  • 3 years 2012-2014 up 19%


See this post for expanded details on Construction Spending – Nonresidential Markets – Buildings and Infrastructure

See this post for expanded details on Construction Inflation

Trump’s Wall


Trump’s Wall

Recently I received a call from a major national news source. They asked for help understanding what it would take to build “Trump’s Wall.” I’m an estimator, so I provided some realistic analysis of what it would take.

The border with Mexico is almost 2000 miles long. There is already about 700 miles of fence. This analysis makes an assumption it would be necessary to build only 1000 miles of wall. Also, this estimate is based on the type of wall you see along highways, precast concrete sound and site barrier wall. In reality it would need to be significantly more robust than the typical highway sound-barrier wall, and I’ve taken that into consideration in my estimate. So here goes.

(9-1-16 >>In some other recent articles I’ve read they have suggested a 40 foot high concrete wall. Well, I don’t think you can build a 40 foot high unsupported concrete wall (no bracing at sides) without getting into extremely massive volumes of materials. Such a high concrete wall would need to be much thicker at the base than at the top and the foundation to prevent overturning would need to be massive. Typical rule of thumb for foundation to prevent overturning is the foundation needs to be ~40% as wide as the height of the wall. The volume of concrete would be 4x to 5x what I’ve estimated for the wall I’ve defined here and the excavation, back fill and formwork would add considerable time to complete. Order of Magnitude I guess 40 to 50 million cubic yards of concrete for wall and foundation. I would roughly guess such a massive poured concrete foundation and wall, if it could even be built, would cost THREE TO FOUR TIMES what I’ve estimated here and would require substantially more labor and might take twice as long or more to build.)

This estimate is based on 8″ thick precast heavily reinforced  concrete wall panels set between steel columns 12’0 on center. Even if the concrete could be chipped away, the reinforcing bars would prevent passage. Columns are set in 6’0 dia. x 10’0 deep column foundations. Between column foundations under the wall is a continuous footing to help resist overturning of the wall. The wall extends 25 feet above grade and 5 feet below grade. Bottom of concrete footing under the wall is 7’0 feet below grade. Bottom of column foundations is 15’0 below grade. The wall would be much higher than the approximate 12′ shown in the representative photo.


The foundations included here are based on up-sizing components from a known design for a 15′ high prison un-climbable open-mesh fence. Even with an open mesh fence design, to overcome wind load, column footings were 2″0″ dia x 8’0″ deep concrete post foundations set every 8′ apart. This solid wall 25′ high would have enormously greater wind loads and it is the foundation that must be designed to prevent overturning.

Just to get quickly to the end, I calculated the final cost of a 25′ high precast wall, foundations, excavation and access roads in the vicinity of $25 billion (in 2016 $), $10 million per mile or slightly less than $2,000 per lineal foot of wall. I’m fairly certain this estimate is somewhat low and the actual cost due to the many unknowns would be higher. At the end I’ve pointed out some of the issues that could generate unknown costs.

One huge factor is inflation. The cost 5 years from now could be 20%-25% greater than the cost today. If the wall takes 10+ years to build, the cost could be $30 to $35 billion.

This is a summary of some of the results from the estimate.

130,000 man-years, or 130,000 workers if it is to be built in 1 year. Or it would take 10,000 full-time workers 13 years to build this wall.

If 1,000 men worked on the wall 5 days a week 8 hours a day, it would take 130 years to build it. Therefore, I made the assumption the project would be broken into 50 segments each 20 miles long. That will require 700 men AT EACH SEGMENT concurrently to complete the wall in 4 years. That’s 35,000 men working for 4 years. That is 35,000 trades-worker jobs which does not include Architect, Engineering, Testing and General Contractors management personnel.

200 million square feet of precast concrete panels = 5.2 million cubic yards of concrete
5 million cubic yards of cast-in-place concrete foundations
Total cement to make the 10.2 million cubic yards of concrete = 2% of annual US cement production.
1.5 million tons of steel = 1.5% of annual US steel production.

25 million cubic yards of excavation required.
6 million cubic yards of that excavated earth must be hauled away and disposed since that volume will be replaced underground with concrete. That’s more than enough to completely fill the Superdome. Or, it’s enough to build a 20 foot wide earthen embankment 20 feet high and 100 miles long.

Delivering the Materials
250,000 truckloads of precast wall panels,
500,000 truckloads of ready mix concrete
50,000 truckloads of steel

200,000 truckloads to haul away excess excavated earth.

This is far from a complete list of materials, because in addition to building the wall, in some places you first need to build a road. Assume about 500 miles of road. You can’t get 1,000,000 truckloads of 30-40 tons each, cranes, excavators and auger drills to a construction site without at least building a compacted gravel road to get there.

Adds 2 million cubic yards of stone for construction equipment road.

Adds 100,000 truckloads of stone

1,100,000 truckloads at 50 locations over 4 years is = 20 deliveries per day of 30 to 40 tons each at each of the 50 locations. That works out to 40 truck bypasses per day coming and going, so 30 ton trucks go by (some community) every 12 minutes at every one of 50 locations every workday for 4 years. It is very likely that heavy truck traffic will destroy many if not all the town roads used to access the 50 construction sites. The cost to repair/replace those existing roads is NOT included here, but I suspect it would be in the hundreds of millions.

Energy cost just to produce 1.5 mil tons of steel is enough to power 250,000 homes for 1 year. Energy to produce both steel and concrete probably more than doubles that number.
The money spent is enough to build 70,000 new homes or 500 new high schools.
Gasoline just for all truck deliveries is near 5 million gallons.

The concrete and steel materials gross to 2% of annual US cement production and 1.5% of annual US steel production, but that represents close to 3% of steel used in construction. About half of all US steel goes into your refrigerators, cars, etc., the other half goes into construction. The materials demand has far more affect than you might think on disrupting normal construction flow. Since it is all localized in one area of the country, the far southwest border, it could potentially represent 20% and 30% of the construction materials capacity in that area of the country, straining the capacity in that area and disrupting the normal volume of construction there for years. This would be detrimental to the rest of the construction industry growth in that area for that period.

This does not address the fact that manufacturing facilities to produce and fabricate the steel and deliver concrete needed at each of the 50 work sites ideally should be spread along this 1000-mile corridor, which is very unlikely. In fact, I suspect it more likely that some locations will not be in close proximity to a materials source, the result either driving cost up or extending duration beyond 4 years, or both. It could require building process plants along the path, for instance, ready-mix concrete batch plants and steel fabrication yards.

The time necessary for land acquisition, design, permitting, environmental study, mass material procurement, construction process planning and mobilization would be many months before construction begins. Although labor availability and the number of sites determines construction duration, 4 years would be a reasonable estimate for construction ONLY IF the 35,000 trades-workers needed can be mobilized simultaneously to 50 job sites, but that is not likely. The 4 years of construction starts when planning, design and permitting are complete. That might take 6 to 12 months.

Construction is experiencing what may be the tightest labor market in over 20 years. Since there are few if any available workers to shift to these new job site locations, we would need to assume much of this work is supported by creating nearly 35,000 new jobs. Several serious problems arise.

In this localized area of the country, that could potentially be 2% to 4% expansion of the construction workforce. The maximum historical rate of annual workforce expansion is 5% nationwide. Normal annual jobs growth is 3% to 4%. If one project were absorbing 100% of the jobs growth in an entire region, there would be no workers available for any other construction activity growth for several years.

Such an expansion would be extremely difficult to implement that quickly. The mobilization of 35,000 workers could take a very long time from initial ramping up to full employment, therefore extending the duration to complete the job. Many of these workers would be inexperienced adding further to the project duration. So reaching completion of this work would probably take much longer than 4 years. Adding time for planning and more time for ramping up labor, it could be 6 years.

Ramping up then down will soften the blow as the jobs begin to disappear at project completion. It could be pretty hard to generate enough new volume of work to keep all those men working. It will take new volume of $5 billion to $6 billion a year to keep all these workers working.

This brief analysis of cost and constructability does not begin to address issues such as, how would a wall be built anywhere along the 1,000 miles of the Rio Grande river, the border between Texas and Mexico, the 4th largest river in the United States. Assuming such a wall must be built on US soil,  a wall would then completely cut off river access from the United States? Or, how would a wall be built through the hundreds of miles of national parks and national wildlife refuges along the border without disrupting natural wildlife migration flow? And, how would it be designed along its 1,000 mile corridor to accommodate drainage across a solid impervious barrier? It seems impractical or at the very least massively environmentally disruptive.

You can see, the logistics would be enormous, impediments loom, adjacent communities would be adversely impacted, the cost is probably far more than the $25 billion estimated and it seems highly unlikely this could ever be completed during the course of a single president’s term.

1st Quarter 2016 Construction Spending and Forecast

5-2-16  March construction spending was released today.  Spending is UP 9.1% year-to-date vs 2015

Year-to-date gains are led by nonresidential buildings  up 11.3%, followed by non-building infrastructure up 8.6% and residential up 7.5%.

Construction Spending by Sector Jan2013-Apr2017 Mar 2016

This plot, Construction Spending By Sector, shows actual spending (SAAR) through March 2016 and projected spending to April 2017.

The biggest percentage growth year-to-date gain is multifamily housing ,up +31%, although Residential combined is up only 7.5%. Other growth, Lodging +30%, Office +22% and Highway +21%.

  • Residential year-to-date spending:
  • $ volume changes; SF +11.2%, MF +31%, Reno -7.3%.
  • Market share; SF 55%, MF 16%, Reno 29%.

The biggest $ volume gain through March is Residential +$6.4b, which includes a decline in renovation work. Single Family is up +$5.0b and Multifamily is up +$3.4B. Office +$2.6b, Highway +$2.5b and Educational +$2.1b. Although lodging is up 30%, its market share is small and its $ volume is up only $1.3b.

Residential spending has completely recovered from a 4% decline in January. Projected growth of 20% from now through the 4th quarter will help residential spending reach a total 15% growth for 2016.

Nonresidential buildings spending climbed 4% in the last two months from the stalled range that remained nearly flat from May 2015 through January 2016. Growth may peak this year in the 3rd quarter before dropping into year end, but may still reach a total 12% growth for 2016.

Infrastructure spending has meandered along the $300 billion mark since last May and is expected to stay there through 2016. Expect only slight growth of 4% in infrastructure spending in 2016, contributed mostly by Highway and Street.

All sectors may experience a decline in spending before year end, but all are expected to return to growth leading into 2017.

Total construction spending in 2016 should reach $1.220 trillion, up 11% from 2015. 2014 through 2016 will be the strongest 3-year growth on record in both percentage gain (+34%) and $ volume gain (+$314 billion). Only 2003-04-05 comes close.

Later, a comparison of inflation adjusted (constant) dollars. The results will be different. I’m estimating particularly high rates of inflation, so inflation reduces the gain in real constant volume from the spending projections by a lot in 2016. 


Construction Volume Vs Construction Spending

Construction volume is not the same as construction spending.

Spending vs Volume 1994-2015

Spending is the number nearly everyone follows. Volume is spending minus inflation.

Two years that show the greatest differences between spending and volume highlight the affect of inflation. In 2004 and 2005 total construction spending grew by 11% and 12.5%, but after inflation, volume grew by only 3% and 2%. In the most recent year, construction spending in 2015 grew by 10.5% but total construction volume grew by only 7.5%.

For the four years 2012 through 2015 construction spending grew by 35% but after inflation volume grew by 21%. Inflation accounts for 14% of spending growth.

Annual construction inflation varies for residential, nonresidential buildings and nonresidential infrastructure, and it varies sometimes so widely that each should be used only to adjust that specific group. Since 1993, long-term annual construction inflation for buildings has been 3.5% per year, even when including the recessionary period 2007-2011. During rapid growth periods, inflation averages more than 8% per year.

Historical average volume growth over the last 22 years is grossly distorted by the recession. Volume declined in 8 of those 22 years.  In the worst three years of the recession, 2008, 2009 and 2010, volume declined by 28%. If we take out those three years the typical growth period averages are more apparent. The historical average volume growth in construction with recession data removed and after adjusting for inflation is 2% per year for 19 years.

Adjusting for inflation is changing current dollars to constant dollars.

Current dollars = dollars are reported in the value of the year reported, 2008 = 2008$, 2015 = 2015$.  News reports almost always refer to current dollars and therefore do not account for the influence of inflation.

Constant dollars = all dollars adjusted to represent dollars in the year of comparison. This adjusts for inflation so 2008$ (and all other years) are converted to equivalent 2015$.

It’s not too hard to understand why we need to look at constant dollars when you think of it in terms of building a house. For example, a 2,500 sf house built in 2001 may have cost $250,000 then to build. Today to build that exact same house may cost $400,000. The house is no different, so volume remains the same. The only thing that changed is inflation. With respect to constant dollars for the same volume, $250,000 in 2001 dollars would be equal to $400,000 in 2015 dollars.

The common comparison is to look at growth in construction spending from year to year. What that does not tell us is how much of the spending growth is inflation and how much is a real increase in construction volume.

Spend current vs constant2015 22pct volume growth

Constant dollars makes a huge difference in the analysis. Adjusting all previous years of spending allows us to compare changes in volume growth from year to year. This plot of total construction dollars shows current dollars would indicate we are now only 7% below the previous high and we’ve had growth of 37% from the recession low.  Constant dollars, adjusting for inflation, shows volume is still 17% below the previous cycle high and we’ve had growth of only 22% since the recession lows.

Construction Forecast 1st Look – What To Expect in 2016?

Construction spending may reach historic growth in 2016.

There are currently six estimates available forecasting 2016 total construction spending ranging from 6% to 10% growth, with an average of 8.7%. My forecast is 9.7%.

Total construction spending, forecast to grow 9.7% in 2016, could reach a total 30% for the three years 2014-15-16. The only comparable periods in the last 20 years are 29% in 2003-04-05 and 27% in 2013-14-15.

The current nonresidential buildings construction boom could become an historic expansion. Nonresidential buildings spending is forecast to grow 13.7% in 2016. Added to 8.8% in 2014 and 17.1% in 2015, the three-year total growth could reach 40% for 2014-15-16. The only comparable growth periods in the last 20 years are 40% in 2006-07-08 and 32% in 1995-96-97.

For perspective, residential spending increased 46% in 2013-14-15, similar to only one comparable period in the last 20 years, 48% in 2003-04-05.

Non-building infrastructure projects, in two of the last three years have barely shown any gains entirely due to declines in power plant projects. This will repeat in 2016.

This is still the 1st or 2nd most active 3 year period of growth in construction in more than 20 years, and it’s already been ongoing since 2013-2014. With the forecast for 2016, spending growth could reach a new three-year high.

From the middle of Q1 2016 to the end of Q3 2016, total spending will post six to eight months at an annual growth rate of 20%, but due to the dips at the beginning and the end of the year, total 2016 construction spending will finish at 9.7% growth. Construction spending momentum is not yet losing steam. We may be seeing the effects of a few years of erratic growth patterns and a shift from more rapidly changing commercial and residential work to slower growth institutional work.


Index of Actual Spending and Starts Cash Flows 2012-2017

Residential spending will slow several percent early in 2016 before resuming upward momentum to finish the year with 12% growth, slightly less than growth in 2014 and 2015. Periods of low new start volumes need to work their way thru the system and this produces growth patterns with periodic dips. The upward momentum will carry into 2017.

Nonresidential buildings spending will slow moderately in the next few months before we see a 15% growth rate through the middle of the year, only to see another slowdown late in 2016. Major contributions are increasing from institutional work in educational and healthcare markets. Office, commercial retail, lodging and manufacturing will decline considerably from 2015 but still provide support to growth.

Infrastructure projects spending will decline over the next six months due to the ending of massive projects that started 24 to 42 months ago. There will be large advances in spending midyear before we experience another slowdown later in 2016. Following a 0.5% increase in 2015, spending will increase only 1.2% in 2016, held down by a 10% drop in power projects, the second largest component of infrastructure work.

Construction added 1.0 million jobs in the five years 2011-2015.  800,000 jobs were added in the last three years. To support forecast spending, jobs need to grow by 500,000 to 600,000 in 2016-2017. Growth in nonresidential buildings and residential construction in 2014 and 2015 led to significant labor demand which has resulted in labor shortages in some building professions. Demand in 2016-2017 will drive up labor cost and may slow project delivery.

Spending growth, up 35% in the four-year period 2012-2015, exceeded the growth during 2003-2006 (33%) and 1996-1999 (32%) which were the two fastest growth periods on record with the highest rates of inflation and productivity loss. Construction spending growth for the period 2013-2016 is going to outpace all previous periods.

Construction inflation is quite likely to advance more rapidly than some owners have planned. Long term construction cost inflation is normally about double consumer price inflation. Construction inflation in rapid growth years is much higher than average long-term inflation. Since 1993, long-term annual construction inflation for buildings has been 3.5%, even when including the recessionary period 2007-2011. During rapid growth periods, inflation averages more than 8%. 

For the last three years the nonresidential buildings cost index has averaged just over +4% and the residential buildings cost index just over +6%, however, the infrastructure projects index declined. The FWHA highway index, the IHS power plant index and the PPI industrial structures and other nonresidential structures indices have all been flat or declining for the last three years. This provides a good example for why a composite all-construction cost index should not be used to adjust costs of buildings. Infrastructure project indices often do not follow the same pattern as cost of buildings.

Anticipate construction inflation of buildings during the next two years closer to the high end rapid growth rate rather than the long term average.


Want to Know About Construction Data?

There’s no shortage of data and monthly articles about the construction industry. Like anything else, you need to know how each piece affects the whole if you wish to understand all that data.

In my semi-annual report, “Construction Economics – Market Conditions in Construction”, you can gain an understanding of each piece of the whole, how to read it and use it and the impact it has on total construction.

Topics covered in the report:

  • Construction Starts – The Importance of Cash Flow
  • Leading Indicators – Which Numbers Tell Us About Next Year
  • Construction Spending – YTD, Mo/Mo and Yr/Yr
  • Nonresidential Construction Spending by Major Market
  • Residential Construction Spending and Housing Starts
  • Public/Private Spending
  • Inflation Adjusted Volume – Real Growth
  • Jobs and Unemployment and Increased Hours
  • Jobs/Productivity
  • Behind the Headlines – What’s Right? What’s Wrong?
  • Some Signs Ahead – Links to Industry Articles
  • Producer Price Index – Only Part of Materials Cost
  • Material Price Movement – Major Materials
  • Consumer Inflation is NOT Construction Inflation
  • Construction Inflation and What Affects It.
  • ENR Building Cost Index
  • Indexing by Location – City Indices
  • Selling Price – The All-In Cost
  • Indexing – Addressing Fluctuation in Margins
  • Escalation – What Should You Carry?

Watch HERE for the soon to be released 2015 year-end report with forecast for construction in 2016.

Welcome to the New Year. What’s Up With Construction?

It’s been about two weeks since I wrote a blog post.  With good reason.  I’ve spent the last few weeks working sometimes 10 or 12 hour days getting all the information for and writing a construction economics report.  Coming soon!

Here’s a few tidbits out of the mass.

The nonresidential buildings construction boom that is going on right now could become an  historic expansion. I’m predicting 13.7% growth in 2016. Added to  8.8% in 2014 and 17.1% in 2015 that could be 39.6% growth in 3 years 2014-15-16.

Only 3 year periods back to 1993 that are comparable: 2006-07-08  40.1% and 1995-96-97  32%.


Total construction spending growth for the 3 years 2014-15-16 could reach 30%.  I forecast 9.7% growth in 2016.

Only 3 year periods back to 1993 that are comparable: 2003-04-05  29% and 1998-99-2000  25%.

Well, there is one more comparable.  The last three years of total construction spending growth for 2013-14-15 was up 27%, so this expansion is already ranked 2nd.

What we see here is the 1st or 2nd most active 3 year period of growth in construction on record back to 1993, and it’s already been happening for two  or three years.

For perspective, residential spending for  2013-14-15 grew 46%! Similar only to residential spending in 2003-04-05 at 48%.

Welcome to the new year.  So let’s go see if we can break some records.

Heard at Dodge Data Outlook 2016, Oct. 30, 2015

Dodge Data & Analytics Outlook 2016 event held in Washington DC, October 30, 2015.

A brief summary of comments heard and information from my notes.

Art Gensler – Founder Gensler

How do you control 5000 people?  Hire good people and get out of their way.

People value what they pay for and ignore what they get for free.

Beth Ann Bovino – U.S.Chief Economist, Global Economics & Research, Standard & Poor’s

Domestic economy is strong and strengthening.

Jobs are stronger – Quits rate is at a 7 year high.

Housing starts are up – Home prices are up.

Wages are struggling and we have a historical 38 year low labor participation rate.

Ted Hathaway – CEO Oldcastle BuildingEnvelope

We increased wages significantly to keep people from leaving.

The cost and disruption is huge if you lose a valuable member of a team.

Dan McQuade – President, Construction Services, AECOM

Three emerging trends

Global collaboration

Investing capital with clients and partners

Better collaboration with vendors & suppliers. Treat subs and vendors as partners.

Larry Kudlow – Economist and Senior Contributor CNBC

Our biggest problem – We do not have strong steady economic growth.

Corporate profits were high after recession but have declined last three quarters. Profits were likely responsible for the stock market rise.

Bob Murray – Vice President, Economic Affairs, Dodge Data & Analytics

The DMI is reflecting the institutional dip has ended and now beginning to grow, although slowly.

New construction starts 2013 = 11%, 2014 = 9%, 2015 = 13%p

Actual $ put-in-place 2013 = 7%, 2014 = 5%, 2015 = 10%

New starts that declined in 2015 Warehouses, Stores, Public Bldgs, Manufacturing

New Starts that increased in 2015 Residential, Hotels, Highway, Electric-Gas-Power

Expectations for 2016

Total new construction starts up 6%.

Residential up 16%, single family will grow faster than multifamily.

Commercial up 11%, led by warehouses and stores

Institutional up 9%, led by educational

Manufacturing down 1%, but from very high 2014 and 2015

Power down 43% from extreme high starts in 2015

Construction cycles may be indicating we have years of growth left in the current cycle.

Welcome to my Construction Economics blog

Welcome to my new blog.  Here I will expand on current issues of construction economics.  On Twitter @edzarenski, I will tweet updates to my most recent Construction Economic report and out of necessity I will keep it short.  When issues demand further explanation, you will find it here.  Thanks for visiting. edz

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