Home » Construction (Page 2)

Category Archives: Construction

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.

 

2016 Construction Outlook Articles

 

Articles Detailing 2016 Construction Outlook

Links will open in a new tab

These links point to articles here on this blog that summarize end-of-year data for 2015 and point to articles with projections for 2016.

Most Recently Published

Summary of 2017 Construction Outlook 2-21-17

How Much Does A Steel Cost Increase Affect Construction? 9-18-16

Trump’s Wall

2015 Results

Construction Spending 2015-2016 – How Do The Forecasts Compare? 12-9-15

Construction Spending 2015 and 2016 11-9-15

Construction Spending Market Performance of Nonresidential Bldgs 2015-2016 10-15-15

New Starts and 2016 Starting Backlog

Construction Backlog 2017 3-20-17

New Construction Starts Leading Into 2017 1-24-17

Behind The Headlines – Construction Backlog 1-16-17

Starts Point to Robust 2017 Spending 10-20-16

New Construction Starts Much Better Than Might Appear 9-23-16

Spending Forecast

Forecast 2017 Construction Spending 1-7-17

2016 Construction Spending year end 1-3-17

Are We at New Peak Construction Spending? 1-4-17

Construction Spending Gets Revised UP 10-6-17

Construction Spending 2016 – Midyear Summary

1st Quarter 2016 Construction Spending and Forecast

Construction Forecast 1st Look – What To Expect in 2016? 1-14-16

Erratic Pattern Ahead for 2016 Construction Spending. Why?

Nonresidential Buildings

Construction Spending 2016 – Midyear Nonresidential Markets

Updated 1-23-16 Forecasts of 2016 Nonres Buildings Construction Spending % Growth

Construction Spending Market Performance of Nonresidential Bldgs 2015-2016 10-15-15

Residential

Construction Spending vs Dodge Starts vs New Housing Unit Starts 4-27-16

Residential Work Flow From Housing Starts 4-25-16

Housing Starts > Look a Little Deeper 11-18-15

Claryifying Housing Starts Numbers 11-6-15

Residential Construction – Not All Data Tells The Same Story 10-25-15

Infrastructure Outlook

Infrastructure – Ramping Up to Add $1 trillion 1-30-17

Infrastructure Outlook 2017 1-12-17

Calls for Infrastructure Problematic 1-12-17

Saturday Morning Thinking Out Loud #1 – Infrastructure 10-29-16

Public  Construction

Infrastructure & Public Construction Spending 3-5-17

Public Construction Spending 2016-2017 10-21-16

Jobs

Construction Spending vs Jobs 2-9-17

Behind The Headlines – Construction Jobs 2-16-17

Construction Jobs Show 3rd Qtr Growth 10-7-16

How Many Construction Jobs Needed to Support 2016-2017 Spending Forecast? 1-12-16

Inflation

How Much Does A Steel Cost Increase Affect Construction? 9-18-16

Construction Inflation Cost Index 1-31-16

 

 

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%.

Similarly,

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

%d bloggers like this: