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Behind the Headlines – Construction Jobs in 2021

3-6-21

Don’t be fooled by the upturn in January nonresidential buildings construction spending.

The greatest negative impact created by the loss of nonresidential buildings new starts from Apr 2020 to Oct 2020 has not yet hit spending and jobs in this sector. Expect both spending and jobs to decline steadily throughout 2021. My current forecast shows monthly spending down on average 1%/month for 9 out of the remaining 11 months in 2021. Dec 2021 SAAR (seasonally adjusted annual rate) will be 10% below Dec 2020, 18% below Q1 2020.

Do not expect any jobs growth in construction in 2021.

We all know a project takes time to build. It starts out slow, ramps up to peak spending and staffing just after the midpoint of the schedule and tapers off to completion. Peak monthly spending on a project with a 20-month schedule occurs 10 to 12 months into the schedule.

If we record a month of new starts 20% above normal, then 10 to 12 months from now spending and jobs from projects that started in that month will be 20% higher than normal. Then it stands to reason, if we record a month of new starts that is 20% BELOW normal, then 10 to 12 months from now spending and jobs from that month will be 20% lower than normal.

The greatest impact on spending, either up or down, from changes in new construction starts, occurs at the point in time when those projects would have reached peak spending, near the project midpoint.

In April 2020, new starts for nonresidential buildings fell 40% and then averaged 30% below normal for the next 6 months. If average duration of nonresidential buildings projects is about 20 months, then the loss of new starts will result in a maximum decline in spending and jobs 10 to 12 months later. (If average duration is about 24 months, then the loss of new starts will result in a maximum decline in spending and jobs 12 to 14 months later. This analysis uses 20 months).

Declines in new starts after April 2020 were large through the entire year, but during the months April through October 2020, starts averaged down 30%. Therefore, the maximum declines in spending and jobs from this period of reduced starts will occur 10 to 12 months later, from the beginning of the period to the end, from February through August 2021. Nonresidential buildings new starts in November, December 2020 and January 2021 are still down 20% from the pre-pandemic 6mo avg. high. This means spending declines will continue past August 2021, but at a slower rate of decline.

In Q1 2020, nonresidential buildings construction spending SAAR (seasonally adjusted annual rate) was $485 billion/yr. In April and May it had only dropped 3.5%. In Dec 2020 nonresidential buildings spending was $440 bil., down 10% from Q1. By May 2021, nonresidential buildings spending will only be $420 bil. By September 2021, the rate will be down to $400 billion.

Nonresidential buildings construction spending forecast in 2021 is down 11% from 2020. Spending continues to decline 6% in 2022. Inflation makes all these numbers slightly worse. If spending is down 11% at a time when inflation is up 3%, then real volume of work is down 14%. Jobs should follow in step with volume.

Nonresidential buildings spending especially will remain below the previous high at least for the next three years, probably longer. New starts in 2021 would need to ramp up by more than 40% to push 2021 spending back up to previous levels. New starts are forecast to gain only 3% to 5% for the next two years.

Nonresidential buildings (and to a lesser extent Nonbuilding Heavy Engineering) spending and jobs losses for the next year will be much greater than the gains expected due to increases in residential spending. New construction starts in 2020 for all types of nonresidential work declined by what is adjusted to a $150 billion decrease in spending. Residential increased by $35 billion. But again, the spending from those starts is spread out over time.

Nonresidential buildings volume declines of 14% project to a loss of over 400,000 jobs in 2021 and Non-building Infrastructure is projected to drop 60,000 jobs, but Residential could experience growth next year of 250,000 jobs. That could result in net annual jobs losses of 200,000. Job losses continue into 2022 with net volume declines of 4%.

Here is a sample cash flow schedule that shows when spending is impacted by changes in new starts in 2020.

Click on chart to see larger. Use back arrow to return to this article.

This cash flow schedule is based on reduced starts in Apr-Dec 2020. All other months are considered at 100% of the pre-pandemic rate. This sample uses $10bil/mo of new starts as 100%, the high in the 1st quarter, carried out over a 10mo schedule. If the rate of starts were to remain constant at $10bil/mo, then the spending would also remain constant at $10bil/mo. The amounts carried for April to Dec represent the actual starts recorded, measured as a percent of previous high, the 1st quarter 2020, so $6.6 bil in May is 66% of the pre-pandemic highpoint average, which here is $10bil.

With the onset of reduced starts in April 2020, spending began to fall, but only a few percent. The cumulative impact to spending of all reduced starts will be months later than the initial impact. Cash flow shows maximum impact is ~50% to 60% out in time of each individual schedule. The spending in any given month includes input from starts in 10 different months. It’s when a month lines up with all the inputs from reduced starts months that spending reaches its lowest.

The bottom line of $ is construction spending per month, the sum of the contributions from the cash flow of all the still ongoing projects. That shows when greatest impact occurs. The low point in spending can be measured in months from the initial event, April 2020. But the combined effect extends well beyond the initial event (reduced starts) which started in April but lasted until December. This is why maximum impact of reduced spending for nonresidential buildings stretches over a long period in 2021-2022.

Assuming an average duration for a particular nonresidential buildings market sector is 20 months to build, deepest losses will occur 60%x20mo or 12 months later, Apr2021, and continue to Dec2021. This duration certainly varies by building type and could vary from as short as 12 months to as long as several years. Maximum impact is always 50%-60% into the duration.

Declining spending does not support jobs growth.

See Also Construction Jobs in 2020 down 220,000

See Also Projects On Hold vs Lost New Project Starts

2021 Construction Economic Forecast – Summary

Initial Construction Outlook 2021, 2-5-21, based on data from:

  • Actual Jobs data includes BLS Jobs to Jan 16th, issued 2-5-21
  • Forecast includes US Census Dec 2020 year-to-date spending as of 2-1-21
  • Forecast includes Dodge Outlook 2021 and Dec construction starts 1-19-21

SUMMARY – CONCLUSIONS

Construction Spending drives the headlines. Construction Volume drives jobs demand. Volume is spending minus inflation. Current outlook shows the most recent peak volume was 2017-2018. Total Volume is forecast to decline every year out to 2023, but Residential is rising, Nonresidential is falling.

When spending increases less than the rate of inflation, the real work volume is declining. Nonresidential buildings spending for 2020 is down -2%, but with 3% to 5% inflation, volume is down 5% to 7%. The extent of volume declines would impact the jobs situation.

STARTS – BACKLOG – SPENDING

By far the greatest impact of the pandemic on construction is the massive reduction in new nonresidential construction starts in 2020 that will reduce spending and jobs in that sector for at least the next two years. Residential continues to increase.

  • 2020 new starts declined -8%. Res +7%, Nonres Bldgs -24%, Nonbuilding -14%.
  • New starts for residential reached an all-time high in 2020. Expect up +5% in 2021.

Nonresidential construction starts in backlog at the beginning of the year provide for 75% to 80% of all spending in 2021. New starts in 2020 were down 24% for buildings and 14% for non-buildings, so backlog is down. It would be difficult to show any scenario that has these sectors up in 2021.

  • Starting Backlog for 2021 is forecast down -10%. Backlog for 2022 is forecast down -5%.

Construction has yet to experience the greatest downward pressure from the pandemic. After hitting a post-pandemic spending high in December, spending and jobs losses won’t hit bottom until 2022. Nonresidential declines outweigh Residential gains.

  • Spending forecast for 2021 is up +1.4%, but nonresidential buildings is down -11%.
  • Almost all gains in spending are due to large 12%/yr gain in residential.

The largest declines in 2021 spending are Lodging -37%, Amusement/Recreation -26%,    Manufacturing -19% and Power -15%.

PROJECT COST ESCALATION – INFLATION

  • Inflation for nonresidential buildings near 4% the next few years. Residential 5% to 6%.

VOLUME – JOBS

Construction Jobs annual average for 2020 is down 220,000 jobs. The current spending forecast is indicating that December 2020 was the highpoint for jobs. Residential jobs will be up in 2021, but Nonresidential Buildings jobs are down steep. Net jobs will be down 15 of next 18 months. Forecast 2021 net annual average jobs losses of -200,000. Nonresidential Buildings 2021 jobs losses will outweigh residential gains.

Selected slides from Feb 2021 Construction Outlook Presentation

EdZ Econ Feb 2021 SAMPLE SLIDES PDF

Read More 2021 Construction Economic Forecast

2021 Construction Economic Forecast

Initial Construction Outlook 2021, 2-5-21, based on data from:

  • Actual Jobs data includes BLS Jobs to Jan 16th, issued 2-5-21
  • Forecast includes US Census Dec 2020 year-to-date total spending as of 2-1-21
  • Forecast includes Dodge Outlook 2021 and Dec construction starts 1-19-21

This analysis utilizes Dodge Data & Analytics construction starts data to generate spending cash flow to then determine how spending may affect future construction activity.

When spending increases less than the rate of inflation, real work volume is declining. In 2020, nonresidential buildings spending is down -2%, but with 3% inflation, volume declined 5%. The extent of volume declines negatively impacts the jobs situation. A 5% decline in Nonresidential Buildings volume impacts $22 billion worth of work and more than 100,000 jobs. In 2021, spending is forecast down 11%, volume down 14%.

2021 Residential spending will climb about 13%, up $80 billion to $695 billion. Nonresidential Buildings spending is forecast to drop -11% to $410 billion, a decline of $50 billion. Non-building spending drops -2% to $343 billion, a decline of only $8 billion.

By far the greatest impact of the pandemic on construction is the massive reduction in new nonresidential construction starts in 2020 that will reduce construction spending and jobs for at least the next two years. Although nonresidential buildings spending is down only -2% for 2020, the 15% to 25% drop in 2020 new construction starts will mostly be noticed in lower 2021 spending.

New Construction Starts

Total construction starts for 2020 ended down -8%, but Nonresidential Buildings starts finished down -24% and Non-building Infrastructure starts are down -14%.

Residential starts finished the year up +7% from 2019.

Most nonresidential buildings markets and residential new starts are forecast to increase 5% in 2021. Nonbuilding starts will increase 10% in 2021.

In the Great Recession, beginning in Q4 2008, nonresidential buildings new construction starts fell 5%, then fell 31% in 2009 and 4% in 2010. Spending began to drop by Dec 2008, then dropped steadily for the next 24 months. Spending dropped 40% over that next two years. During that period, residential starts and spending fell 70%.

In 2020, nonresidential buildings starts fell 24%, but the six months from Apr-Sep, starts fell 33%. Starts are forecast to fall 4% in 2021. Nonres Bldgs spending began to decline in Aug, is now down 10% from Feb high and is forecast to drop steadily the next 20 months, for a total decline of 25%. This time around residential starts and spending are increasing.

Over the final 5 months of 2020, new Residential construction starts posted 4 of the 5 highest monthly totals since 2004-2006. Residential new starts finished 2020 at a 15-year high, with almost 50% of new activity for the year posting in the final 5 months, which will put a lot of that spending into 2021. Total 2020 residential starts are up 7%, but the average for the last 5 months is up 10% from the same period 2019. There is a large portion of 2021 spending from that last 5 months of starts, that will be up 10%.

Nonresidential Buildings new construction starts in 2020 averaged down 24%: Manufacturing -57%, Lodging -46%, Amusement/Recreation -45%, Education -12%, Healthcare -7%. Most of the spending from those lost starts would have taken place in 2021, now showing up as a major decline in spending and work volume.

Manufacturing starts in 2020 fell 57%. Manufacturing projects can have a moderately long average duration, because some projects are 4-5 years. So, projects that fell out of the business plan starting gate in 2020 caused a drop in starting backlog of -32% for 2021 and -33% for 2022. It should not be hard to see how that leads to a huge decline in construction spending the next two years. The same thing happened with Amusement/Recreation and Lodging, although lodging tends to have shorter duration, so affects mostly 2021.

Commercial/Retail starts in 2020 dropped 16%. But this group includes warehouses which finished the year up +1% and warehouses is 60% of the total market. All other Commercial/Retail ended 2020 down 35%.

Non-building Infrastructure new construction starts in 2020 averaged down -13%. Power -37%, Transportation -22%. Highway (along with residential) was the only market to gain new starts in 2020, +8%.

Power new starts fell 37% in 2020, but Power backlog has not increased since 2018. Even though Power new starts in 2021 are forecast to increase 13%, that’s not enough to push spending to positive.

Transportation starts declined -22% in 2020. But Transportation backlog increased 50% over the last three years. There is a large volume of Transportation projects currently in backlog, and although backlog does drop slightly for 2021, spending is supported by the large volume of starting backlog and a forecast for increased new starts in 2021.

The following NEW STARTS table shows, for each market, the current forecast for new construction starts. With exception of residential, spending in all other markets, due to longer schedules, is most affected by a decline in new starts, not in the year of the start, but in years following. As we begin 2021, some effects of reduced starts have not even begun to show up in the data. A 24% decline in new nonresidential starts in 2020 results in a huge decline in spending and jobs in 2021-2022.

Almost every nonresidential construction market has a weaker spending outlook in 2021 than in 2020, because approximately 50% of spending in 2021 is generated from 2020 starts, and 2020 nonresidential starts are down 24%, with several markets down 40%. Starts lead to spending, but that spending is spread out over time. An average spending curve for nonresidential buildings is 20:50:30 over three years. Only about 20% of new starts gets spent in the year they started. 50% gets spent in the next year. The effect of new starts does not show up immediately. If new nonresidential buildings starts in 2020 are down 24%, the affect that has in 2020 is to reduce spending by -24% x 20% = – 4.8%.  The affect it has in 2021 is -24% x 50% = -12%. In 2022-2023 the affect is -24% x 30% = -7.2%.

Starting Backlog

Starting backlog is the estimate to complete (in this analysis taken at Jan 1) for all projects currently under contract. The last time starting backlog decreased was 2011.

Backlog leading into 2020 was at all-time high, up 30% in the last 4 years. Prior to the pandemic, 2020 starting backlog was forecast UP +5.5%. Due to delays and cancelations, that has been reduced to +1.8%, still an all-time high. Starting Backlog, from 2011-2019, increased at an avg. rate of 7%/year.

If new construction starts are greater than construction spending in the year, then for the following year starting backlog increases. It’s when new starts don’t replenish the amount of spending in the year that backlog declines. And that is the case this year.

Total starting backlog is down -10% for 2021 and -5% for 2022. 2021 Starting Backlog is back to the level in 2018. In 2022, backlog drops to the level of 2017.

Nonresidential Buildings new starts declined by -24% in 2020 resulting in starting backlog drops -19% for 2021 and drops -9% for 2022.

For Non-building Infrastructure, a drop of -14% in 2020 starts results in a drop of 9% in 2021 starting backlog and -5% for 2022. 

Residential starting backlog for 2021 is up +12%. New starts are up 6%.

2021 backlog declines in every nonresidential market, except Highway.

80% of all nonresidential spending in any given year is from backlog and could be supported by projects that started last year or 3 to 4 years ago. Residential spending is far more dependent on new starts than backlog. Only about 30% of residential spending comes from backlog and 70% from new starts.

Projects in starting backlog could have started last month or last year or several years ago. Many projects in backlog extend out several years in the schedule to support future spending. Current backlog could still contribute some spending for the next 6 years until all the projects in backlog are completed.

Reductions in starts and starting backlog lead to lower spending. Residential construction is going counter to the trend and will post positive results for new starts, backlog and spending for the next two years. Nonresidential buildings will experience the greatest reductions in new starts, backlog and spending through 2022.

Spending Forecast 2021

2021 Residential spending will climb about 13%, up $80 billion to $695 billion. Nonresidential Buildings spending is forecast to drop -11% to $410 billion, a decline of $50 billion. Non-building spending drops -2% to $343 billion, a decline of only $8 billion.

Most all the change in this forecast from previous is an increase to residential spending. Both recent starts and spending increased substantially since previous forecasts. When looking at Total Construction Spending for 2021, residential growth obscures the huge declines in nonresidential.

The monthly rate of spending for residential increased 33% in the 7 months from May to December. The last time we had growth like that was 1983. The last time we had rapid growth in residential work, 2013-2014 and 2004-2005, it took 2 years to increase 33%. Residential spending in Dec 2020 is 21% higher than Dec 2019.

Nonresidential Buildings spending drops -2% to -3% each quarter in 2021. Nonresidential Buildings spending as of Dec. 2020 is down 10% From Feb. 2020 and 8% from Q4 2019. By 3rd quarter 2021, nonresidential buildings spending is forecast down another 12% lower than Dec. 2020, or 20% below the Feb. 2020 peak. This tracks closely with the 24% decline in new construction starts in 2020.

Nonresidential Buildings construction will take several years to return to pre-pandemic levels. Although nonresidential buildings spending is down only -2% for 2020, the 15%-25% drop in 2020 construction starts will mostly be noticed in lower 2021 spending. Project starts that were canceled, dropping out of new backlog between April and September 2020, would have had midpoints, or peak spending, March to October 2021. Nonbuilding project midpoints could be even later. The impact of reduced new starts in 2020 is reduced spending and jobs in 2021 and 2022.

Almost every market has a weaker spending outlook in 2021 than in 2020, because of lower starts in 2020. Starts lead to spending, but on a curve. A good average for nonresidential buildings is 20:50:30 over three years. 20% of the total of all starts in 2020 gets spent in 2020 (yr1) and that represents also about 20% of all spending. 50% of the total value of 2020 starts gets spent in the following year, 2021. So, 50% of spending in 2021 is generated from 2020 starts. If starts are down 20% and 50% of spending comes from those starts, spending will be down 20% x 50% of the work.

For 2020, the biggest declines are Lodging (-14%), Manufacturing (-10%) and Amuse/Recreation (-7%). Commercial/Retail finishes up +4.2%, but this is entirely due to Warehouse, 60% of the total Commercial/Retail market. Office and Educational are down -4% and -1%. Nonresidential buildings takes the brunt of declines in both 2020 and 2021.

In 2021, every nonresidential building market is down from 2020, some markets down -10% to -20%. Educational, Healthcare and Office are all down -3% to -6%. Non-building infrastructure Power market is down -15%, but Transportation spending is up +10% due to strength in backlog from several multi-billion$ starts over the past few years.

Manufacturing projects have a moderately long duration. So, projects that fell out of the business plan caused a drop in starting backlog of -32% for 2021 and -33% for 2021. It should not be hard to see how that leads to a huge decline in construction spending the next two years. The same thing happened with Amusement/Recreation and Lodging, although lodging tends to have shorter duration, so affects mostly 2021.

A recent AGC survey of construction firms asked, how long do you think it will be before you recover back to pre-COVID-19 (levels of work)? The survey offered “longer than 6 months” as an answer choice. Less than 6 months was the right answer for residential, but my current forecast for full recovery of nonresidential buildings work is longer than 6 years.

Construction Spending drives the headlines. Construction Volume drives jobs demand. Volume is spending minus inflation. Inflation $ do not support jobs. Current outlook shows (recent) peak volume was 2017-2018. Volume is forecast to decline every year out to 2023.

Before we can look at the effect on jobs, we need to adjust spending for inflation. The plot above “Spending by Sector” is current dollars. Below that plot is adjusted for inflation and is presented in constant $. Constant $ show volume. Notice future residential remains in a narrow range after adjusting for inflation. No sector shows improvement in volume through Jan. 2023.

When we see spending increasing at less than the rate of inflation, the real work volume is declining. For example, with construction inflation at 3% annually, a nonresidential buildings spending decline of -2.1% in 2020 would reflect a work volume decline of 5.1%. The extent of volume declines would impact the jobs situation.

While 2021 Residential spending will climb about 13%, Nonresidential building spending is forecast to drop -11% and Non-building spending drops -2%.

But with 4% inflation, after inflation Residential Volume is up only 9%, Nonresidential Building is  down 15% and Non-building is down 6%.

By far the greatest decline in volume is in the nonresidential buildings sector. The greatest losses in 2020 are Lodging, Manufacturing, Amusement/Recreation and Commercial/Retail (without warehouse). In 2021, every major nonresidential building market drops in volume, with staggering 30% declines in Lodging and Amusement/Recreation. Commercial/Retail and Manufacturing will drop -13% to -15%.

Here’s the same graphic as above, but in Constant $, so it’s inflation adjusted. That provides the change in volume of work.


Volume of Work

Residential construction volume dropped 12% from the January 2020 peak to the May bottom, but has since recovered 22% and now stands at a post Great Recession high, 10% above one year ago. Although residential spending remains near this high level for the next year, volume after inflation begins to drop by midyear.

Nonresidential volume has been slowly declining and is now down 10% from one year ago. By 3rd quarter 2021, nonresidential buildings volume is forecast down another 15% lower than December, or 25% below the Feb 2020 peak. This tracks right in line with the 24% decline in new construction starts in 2020. Most of the spending from those lost starts would have taken place in 2021, now showing up as a major decline in spending and work volume.

While construction spending in 2021 is forecast up 1.3%, after inflation construction volume is expected to decline 2.5%. Residential construction spending is forecast up 13%, volume up almost 9%, but 2021 nonresidential buildings spending is forecast down -11% leading to a decline in volume after inflation of -14%. Nonbuilding Infrastructure spending in 2021 declines -2.5%, volume drops -6%.

Nonresidential buildings volume declines of 14% project to a loss of over 400,000 jobs next year and non-building infrastructure is projected to drop 60,000 jobs, but Residential could experience growth next year of 250,000 jobs. That could net annual average jobs losses to -200,000. Job losses continue into 2022 with net volume declines of 4%.

Jobs are supported by growth in construction volume, spending minus inflation. We will not see construction volume return to Feb 2020 level at any time in the next three years. This time next year, volume will be 5% lower than today, 10% below the Feb 2020 level.

Download the complete 2021 Initial Forecast here

Along with this forecast document, See these related articles

2021 Construction Economic Forecast – Summary

2021 Construction Inflation

Measuring Forecasting Methodology & Accuracy

Public/Private Construction Spending Forecast 2020-2021

Behind the Headlines – Construction Jobs in 2021

Construction Jobs 2020 down 207,000

Construction Jobs in 2020 down 220,000

edited 3-5-21 to include 2020 revised jobs and 2021 revised outlook.

Construction closes 2020 down 157,000 jobs comparing Dec 2020 to Dec 2019. Average jobs lost over the year is down 220,000, down 2.9%. Also, average hours worked in 2020 is down. The equivalent jobs lost over the year (jobs x hours worked) is down 3.8% or a loss of 281,000 jobs equivalent.

While construction spending in 2021 is forecast up 1.3%, after inflation construction volume is expected to decline 2.5%. Residential construction spending is forecast up 13%, volume up almost 9%, but 2021 nonresidential buildings spending is forecast down -11% leading to a decline in volume after inflation of -14%. Nonbuilding Infrastructure spending in 2021 declines -2.5%, volume drops -6%.

Nonresidential buildings volume declines of 14% project to a loss of over 400,000 jobs next year and non-building infrastructure is projected to drop 60,000 jobs, but Residential could experience growth next year of 250,000 jobs. That could net annual average jobs losses to -200,000. Job losses continue into 2022 with net volume declines of 4%.

It is notable though, even with residential spending and volume increasing, due to large losses in nonresidential buildings, total construction volume declines every month for the next 9 months. Nonresidential buildings volume declines for the next 18 consecutive months.

There is an unusual occurrence in the data for 2021. Annual average jobs in 2021 may decline in total by only 100,000, but from Dec. 2020 to Dec. 2021, jobs decline may be nearer to 400,000. The annual average change is much less due to the massive decline in jobs in April 2020, which by itself caused the 2020 average to drop by almost 100,000. Most months in 2021 will show jobs about 3% to 4% or more below the same month in 2020, except for April, which will show 2021 jobs 10% higher than 2020.

Some who read this post will question how I forecast such a drop in nonresidential work, when some other analysts predict far less declines and even some who predict nonresidential work increases in 2021. It will be very difficult for anyone to support a forecast for increased spending in 2021 given a 22% drop in new construction starts in 2020 for nonresidential buildings work, most of which would have occurred in 2021.

https://www.bls.gov/web/empsit/ceseeb1a.htm

Pandemic #13 – Midyear Construction Outlook

See Also this update   Construction Forecast Update 10-16-20

SEE ALSO   Pandemic #14 – Impact on Construction Inflation

Midyear Construction Outlook 8-14-20 based on

  • Actual Spending data includes revisions 2018-2019 issued 7-1-20
  • Actual Jobs data includes BLS Jobs to July (12th) issued 8-7-20
  • Forecast includes US Census June 2020 year-to-date spending 8-3-20
  • Forecast includes Dodge construction starts Midyear Update 8-6-20

The first important thing to note is that the US Census, on 7-1-20, revised all spending data back several years. This is an annual occurrence. This analysis includes all revised data, which adds about $30 billion to 2018, $60 billion to 2019, half of all adding to residential, and revises 2020 data. Not everyone has yet updated to this recently revised data, so you may see differences when comparing forecast reports among several firms. If needed, refer to the percent.

Initial impact on spending from project delays/shutdowns

This compares the current construction spending data to a 2020 Forecast from April 1 before any Pandemic Impacts were recorded. It compares actual to what was expected Pre-Pandemic. The change in year-to-date (ytd) all occurred in 2nd quarter data. In fact, 1st quarter ytd growth was forecast at 7% and it came in at 9.5%. 2nd quarter growth was forecast at 6.8% and it came in at 1%.

Construction Spending 2020 year-to-date (ytd) thru June vs 2019

Actual ytd vs Pre-Pandemic Forecast ytd. Nearly all this change is due to projects delayed/shutdown.

  • Nonres Bldgs down 2.4% ytd in 6mo vs pre-pandemic forecast
  • NonBldg UP 3.0%
  • Residential down 4.9%
  • TOTAL down 1.9%

The measure of decline due to Pandemic delays and shutdowns is not the difference between Q1 and Q2 growth in ytd spending. Nor is the impact measured by the current difference in ytd performance vs 2019. It’s the difference between what was forecast for ytd growth pre-pandemic vs actual ytd growth.

For instance, Residential construction spending thru Q2, as reported in the US Census June construction spending release, is up ytd 7.8%. But pre-pandemic it was forecast to be up 12.7% ytd after 6 months. Hence, residential spending has been impacted by a 12.7% – 7.8% = 4.9% decline from original forecast thru June.

Future impact on spending from lost construction starts

Part one of the decline in construction spending was due to delays/shutdowns. Part two will be the impact of reduced construction starts. That has very little affect right now, but will play out over the next few years. But remember once again, the impact in 2021 is not measured by the difference between 2020 and 2021, its the difference between current forecast for 2020/2021 and the pre-pandemic forecast for 2020/2021.

Year-to-date, total construction starts are down 14%. Residential new starts are down 5%, nonresidential buildings down 22% and non-building infrastructure starts are down 14%.

Dodge updated their forecast to show 2020 construction starts for nonresidential buildings fall on average 20%, less in some markets, but -30% to -40% in a few. Only warehouses is up. Non-building starts fall on average 15%. Only Highway/Bridges is up. Residential starts may fall only 5%-10%.

How those lowered starts affect spending is spread out over cash flow curves for the next few years. This has a major impact on jobs later in 2020 and all of 2021 into 2022. For nonresidential buildings, the greatest impact to spending and jobs affected by a reduction of new starts in 2020 occurs from 2021 into 2022 when many of those lost starts would have been reaching peak spending.

Only about 20% of new starts gets spent in the year they started. 50% gets spent in the next year. The effect of new starts does not show up immediately. If new nonresidential buildings starts in 2020 are down 22%, on average, the affect that has on 2020 is reduced spending by -22% x 20% = – 4.4%. But the affect it has on 2021 is -22% x 50% = -11%.

Construction Spending FORECAST 2020 vs Pre-Pandemic Forecast

This change in forecast incorporates reduced new construction starts for 2020 but also includes the impact from delays and shutdowns.

  • Nonres Bldgs down 5.4% for 2020 vs pre-pandemic forecast
  • NonBldg down 0.3%
  • Residential down 6.5%
  • TOTAL down 4.5% vs pre-pandemic forecast

Construction Spending FORECAST 2021 vs Pre-Pandemic Forecast

Nearly all this change due to a reduction in new construction starts in 2020. Notice, it is nonresidential buildings that are impacted the most, down 10% from the pre-pandemic forecast.

  • Nonres Bld down 9.9% for 2021 vs pre-pandemic forecast
  • NonBldg down 6.4%
  • Residential UP 5.8%
  • TOTAL down 2.5% vs pre-pandemic forecast

Future impact on backlog from delays/cancellations and reduced starts

Starting Backlog is the Estimate-to-Complete (ETC) value of all projects under contract at the beginning of a period. Projects in starting backlog could have started last month or last year or several years ago. Many projects in backlog extend out several years in the schedule to support future spending, so backlog growth in not an indicator that tracks year over year with spending. Current backlog at the start of 2020 would still contribute some spending for the next 6 years until all the projects in backlog are completed.

The last time starting backlog decreased was 2011. Starting backlog will fall 10% in 2021 and 2% in 2022. Except for residential work, about 80% of annual spending comes from starting backlog.

Some of the projects delayed or canceled started before Jan. 2020. When one of those projects is delayed, the portion of the project delayed gets removed from 2020 backlog, but then gets added to future backlog. When one of those projects is canceled, the portion of the project not yet put-in-place gets removed from 2020 and future backlog. Not only does that reduced future backlog but also that retroactively reduces the backlog that was on record at the start of 2020. Therefore, 2020 backlog is reduced by delays and cancellations and future backlog is increased by delays, but reduced by cancellations and a loss of new construction starts.

The following is the difference between what was forecast for backlog pre-pandemic and currently projected backlog based on delays, cancellations and reduced starts.

Backlog projected for the start of 2020:

  • Total Construction down 3.6% vs pre-pandemic forecast
  • Nonresidential buildings down 8.3%
  • Non-building infrastructure up 0.5%
  • Residential backlog down 2.2%, new starts down 5.4%

Although two thirds of Residential spending comes from new starts within the year, 2020 backlog is down 2.2%. 2020 new starts are down 5.4%.

The biggest changes to 2020 backlog are Manufacturing, Commercial/Retail and Amusement/Recreation, all down 10% to 15%.

Backlog projected for the start of 2021:

  • Total Construction down 9.8% vs pre-pandemic forecast
  • Nonresidential buildings down 15.1%
  • Non-building infrastructure down 9.4%
  • Residential backlog up 3.6%, starts up 8.4%

For 2021, Power and Environmental Public Works are down 20% and 10% respectively, but Nonresidential Buildings shows most of the losses. Lodging -40%, Amusement -28%, Manufacturing -26%, and Office and Commercial both down about 15%.

  

Spending Forecast 2020 – 2021

Now that we have highlighted the change in the forecast compared to the pre-pandemic forecast, let’s look at the current spending forecast for 2020 and 2021.

Spend Recession 2020 Summary 8-14-20

See Pandemic #11 – June Construction Spending Update  for coverage of midyear spending year-to-date through June.

Spend Sector monthly 2015-2022 8-11-20

For 2020, the biggest declines are Manufacturing, Lodging and Amusement/Recreation, all down -8% to -10%. Commercial/Retail ends up +3.9% (this market is 60% Warehouse). Office and Educational are down -3% and -1%. Nonresidential buildings takes the brunt of declines in both 2020 and 2021.

In 2021, every nonresidential building market is down from 2020, some markets down 10% to 20%. Educational, Healthcare and Office are all down 3% to 5%. Non-building infrastructure Power market is down -11%, but Highway and Transportation are up +10% to 20%.

Spend YTD 2020 plus Markets 2020 2021 8-14-20

Almost every market has a weaker spending outlook in 2021 than in 2020, because of lower starts in 2020. Starts lead to spending, but on a curve, a good average for nonresidential buildings is 20:50:30 over three years. 20% of the total of all starts in 2020 gets spent in 2020 (yr1) and that represents also about 20% of all spending. 50% of the total value of 2020 starts gets spent in the following year, 2021. So, 50% of spending in 2021 is generated from 2020 starts. If starts are down 20% and 50% of spending comes from those starts, spending will be down 20% x 50% of the work.

Although starts are forecast down 15% to 20% in 2020 and UP 5% to 15% in 2021, the drop in starts in 2020 has the greatest impact on reducing spending in 2021. By June of 2021, spending is down 10% from Feb 2020 and volume is down 14%.

Before we can look at the effect on jobs, we need to adjust spending for inflation. The plot above “Spending by Sector” is current dollars. Here that plot is adjusted for inflation and is presented in constant $. Constant $ show volume. Notice residential remains in a narrow range after adjusting for inflation. No sector shows improvement in volume through Jan. 2023.

Spend Sector Constant2019 monthly 2015-2022 8-16-20

By far the greatest decline in volume is in the nonresidential buildings sector. Volume declines follow in line with spending declines. The greatest losses in 2020 are Amusement/Recreation, Lodging and Manufacturing. In 2021, every major nonresidential building market drops in volume.

Why 400,000 construction jobs are not coming back

Reduced starts in 2020 has a major impact on jobs later in 2020 and all of 2021 into 2022. For nonresidential buildings, the greatest impact to spending and jobs occurs from 2021 into 2022 when many of those lost starts would have been reaching peak spending.

Jobs data show construction added 20,000 more jobs in July. After losing almost 1,100,000 jobs in March and April (out of a prior total 7,600,000), we regained 450,000 jobs in May and 160,000 in June. That leaves construction down 440,000 jobs from the February high point.

Jobs are down 6% from Feb to July, but construction spending is down 7% through June and volume (spending adjusted for inflation) is down 9%.

Although we may get slight jobs growth in the next few months, there is little to no volume growth to support it. Spending is currently down 7% from the Feb high and volume is down 9%. More spending declines are minimal through Q1 2021. Due to the large declines in new construction starts, we will begin to see additional spending and volume declines by spring 2021. Most of the decline will be in nonresidential buildings.

This annual plot back to 1999 shows construction spending vs construction volume. Volume is spending minus inflation.  Notice, volume never recovered to peak 2005. Also notice, recent volume began to decline in 2018.

Spend current vs constant thru 2021 8-11-20

The long-term view of jobs vs volume shows an important point. With few exceptions jobs and volume grow equally. Setting a baseline to zero in 1990, there was a spread in 1992 that was nearly equalized by 1998. Jobs and volume growth remained near equal until 2004. Leading into 2006, spending increased by the most in 30 years. Jobs, which seem to lag slightly, grew 15% from 2004 thru 2006. But inflation posted the highest rate in 30 years. While jobs grew to meet spending growth, almost all the spending growth was inflation. By 2006, jobs growth exceeded construction volume by more than 15%.

Jobs vs Volume 1991-2022 2006 deficit 8-14-20

As I said, with few exceptions, jobs and volume grow equally. If we modify history to reset the baseline to 2006 by increasing volume, the plot now shows that all years from 2006 to 2017 remained consistent in jobs growth vs volume growth. So, with exception of 1992 and 2004-2005, all years from 1990 to 2017 had consistent growth in jobs and volume.

Leading into 2017, spending once again reached a rate of near record growth, second only to 2004-2005. Again, jobs, which seem to lag slightly, grew to meet spending growth. But inflation posted the highest rate since 2006. Once again, jobs grew rapidly, but almost all the spending growth was inflation. By 2019, for the second time, jobs growth exceeded construction volume by almost 15%.

Jobs vs Volume 1991-2022 2006 deficit reset 8-14-20

Jobs are supported by growth in construction volume, spending minus inflation. We will not see construction volume return to Feb 2020 level at any time in the next three years. This time next year, volume will be 5% lower than today, 14% below the Feb 2020 level.

We are currently down 440,000 construction jobs from the Feb high. We may regain 40,000 to 50,000 more jobs before the end of the year. But the declining work volume due to a reduction in new starts in 2020 is indicating by this time next year, not only is there no volume to regain 400,000 lost jobs, but we may lose another 200,000 jobs and be down 600,000 jobs below the Feb 2020 high.

The following plot is the same jobs and volume data as above, only plotted monthly rather than annually. Much of the fear decline of jobs in April has been corrected, but jobs are still down 440,000 from the February high. And yet, the plot shows jobs in excess of construction volume by about 12%.

Jobs vs Volume 2015-Jul 2021 dashed 8-14-20

Volume is set to decline at least for the next two years. There will be no volume growth to support jobs growth and long-term jobs growth already exceeds volume growth by 12%. This is not an environment that supports jobs growth.

Pandemic #12 – Jobs & Starts Updated

8-7-20

Jobs data released today show construction added 20,000 more jobs in July. After losing almost 1,100,000 jobs in March and April (out of a prior total 7,600,000), we regained 450,000 jobs in May and 160,000 in June. That leaves construction down 440,000 jobs from the February high point.

Jobs are down 6% from Feb to July, but construction spending is down 7% through June and volume (spending adjusted for inflation) is down 9%.

Year-to-date, total construction starts are down 14%. Residential new starts are down 5%, nonresidential buildings down 22% and non-building infrastructure starts are down 14%. In April, I estimated jobs losses based on Dodge April forecast that new construction starts in 2020 would fall by 10-15% (see Pandemic Impact #4). Yesterday Dodge updated their forecast to show 2020 construction starts for nonresidential buildings fall on average 20%, less in some markets, but -30% to -40% in a few. Only warehouses is up. Non-building starts fall on average 15%. Only Highway/Bridges is up. Residential starts may fall only 5%-10%.

That lowers my forecast for 2021 and 2022.

How those lowered starts affect spending is spread out over cash flow curves for the next few years. This has a major impact on jobs later in 2020 and all of 2021 into 2022. For nonresidential buildings, the greatest impact to spending and jobs occurs from 2021 into 2022 when many of those lost starts would have been reaching peak spending.

Although we may get slight jobs growth in the next few months, there is little to no volume growth to support it. Spending is currently down 7% from the Feb high and volume is down 9%. More spending declines are minimal through Q1 2021. Due to the large declines in new construction starts, we will begin to see additional spending and volume declines by spring 2021. Most of the decline will be in nonresidential buildings.

Spend Sector monthly 2015-2022 8-11-20

Revisit Pandemic Impact #8 – Construction Outlook to compare this plot above to the forecast as of June 3 and to the original forecast at the start of this year.

Jobs are supported by growth in construction volume, spending minus inflation. We will not see construction volume return to Feb 2020 level at any time in the next three years. This time next year, volume will be 5% lower than today, 14% below the Feb 2020 level. In fact, volume began it’s decline in Q2 2018.

Spend current vs constant thru 2021 8-11-20

Almost every market has a weaker spending outlook in 2021 than in 2020. That’s because only about 20% of spending in the year is from new starts in the year. About 50% of spending from new starts in 2020 is spent in 2021. Although starts are forecast down 15% to 20% in 2020 and UP 5% to 15% in 2021, the drop in starts this year has the greatest impact in reducing spending in 2021.

Only about 20% of new starts gets spent in the year they started. 50% gets spent in the next year. The affect of new starts does not show up immediately. If new nonresidential buildings starts in 2020 are down 22%, on average, the affect that has on 2020 is reduced spending by -22% x 20% = -4.4%. But the affect it has on 2021 is -22% x 50% = -11%.

By June of 2021, spending is down 10% from Feb 2020 and volume is down 14%.

Jobs vs Volume 2015-Jul 2021 8-11-20

We are currently down 440,000 construction jobs from the Feb high. We may regain 40,000 to 50,000 more jobs before the end of the year. But the dropping work volume is indicating by this time next year we may lose another 200,000 jobs and be down 600,000 jobs below the Feb 2020 high. 

 

Pandemic Impact #9 – Spending Revisions & Construction Jobs Reset

updated 7-2-20 to include May spending and June jobs report

6-26-20   April construction spending dropped only 3%, but jobs+hours worked dropped 16%. Even though May showed a partial jobs rebound, jobs during this period are still down much more than spending. If this data is accurate, we dropped about half a million jobs more than then the decline in spending would indicate. If so, it’s time to wake up and accept there has been no labor shortage, but rather there has been a huge excess of nonproductive labor.

We’ve seen in the past that jobs can grow in excess of volume growth, but we’ve never seen a period where jobs show a massive decline without a like decline in spending. If it is true that jobs declined without an equal drop in spending activity, then those jobs were nonproductive.

Is the industry about to reset jobs vs work volume? Or, should we expect revisions to the reported data? With the July 1 release of spending data, all monthly (not seasonally adjusted) spending gets revised back to Jan 2018. We’ll see if Mar-Apr gets revised to show larger spending losses.

This post will be expanded after the July 1 construction spending and jobs releases.

Data on recent Construction Starts for May from June 15 release

Dodge Construction Starts average for Apr+May 2020 compared to Avg Jan-Feb-Mar 2020 — Nonresidential Bldgs -34%, Nonbldg Infra -4%, Residential -27%.

Dodge Construction Starts average for Apr+May 2020 compared to Avg Apr+May 2019 Nonresidential Bldgs -18%, Nonbldg Infra -15%, Residential -3%.

So, while Nonresidential buildings starts were down 34% in Apr+May compared to Q1 2020, that’s down 18% compared to the same months 2019. Residential Apr+May starts are down 27% compared to the avg in Q1 2020, but that’s down only 3% compared to Apr+May 2019.

What impact does that have on the year? if Nonres Bldgs starts are down 34% for 2 months, that reduces starts by 6% (34 x 2/12 = 6) for the year (from the prior trend). If Residential starts are down 27% for 2 months, that reduces starts by 4.5% (27 x 2/12 = 4.5) for the year. The full impact on new construction starts will not be known for many months as owner’s make decisions whether or not to move ahead with new capital investment.

7-1-20  The Census Construction Spending report issued today revises spending back several years. 2015, 2016 and 2017 were all revised up 1% to 1.5%. 2018 was revised up 2% and 2019 up 4.5%.

The 3 month decline in spending for Mar-Apr-May 2020 is now reported at only 6%. There is still some disparity in the spending data (vs jobs) in 2020 that is subject to several more revisions and may not get revised for at least a year.

7-2-20  Jobs report for June covers the period May18-Jun14.  Construction spending released 7-1 covers May. We now have 3 months, Mar-Apr-May of spending and 3 months of jobs for the periods Mar16-Apr12, Apr13-May17 and May18-Jun14.  We now begin to get a picture of jobs losses and shutdowns.

Construction Jobs vs Spending Mar-Apr-May vs Feb

  • The 3-month average decline in Volume was -6%.
  • The 3-month average decline in Jobs+Hours was -11%.

Jobs vs Volume PIP 2001-2020 monthly 7-2-20

Construction Projects that shut down in Mar-Apr-May did not post lost revenues as deep as predicted. Spending was down only -4% from February to April.  In May the decline from February reached -6%. Compared to February, Residential spending for May declined -9.5%, Nonresidential Buildings -5% and Non-building Infrastructure declined only -2%.

The data for Mar-Apr-May 2020 shows that the spending drop from shut down delays was far less than anticipated. More than 90% of all work continued unabated through April and May. The result is fewer reductions thereby increasing spending in 2020 and less delayed work pushed out into 2021, lowering 2021 spending slightly. This shifts the balance of spending and now shows a small spending growth in 2020 and only a slight increase in 2021.

Non-building Infrastructure spending is up 8% year-to-date through May. Nonresidential Buildings is level year-to-date. Residential spending ytd is up 9%.

On April 1, the pre-pandemic forecast for 2020 spending was up 6% over 2019. The revised forecast is now up only 2.9%, based on the spending data for Mar-Apr-May released on 7-1-20. The biggest change contributing to the decrease is in residential work. Non-building Infrastructure work, particularly Power and Highway, continues to support spending the next two years.

Spend Recession 2020 Summary 7-3-20

These markets remained at level spending or posted gains in spending in April and May: Public Safety, Amusement/Recreation, Transportation, Communication, Highway/Street, Public Works. The largest declines in spending were in Residential, Lodging, Healthcare, Power and Manufacturing.

The result of lesser impact from fewer work shut downs in Apr-May is a better overall forecast for 2020 and a reduction of delayed work pushed into 2021. However, the forecast for 2020 may possibly get a bit worse with expected revisions. I was predicting shut downs of 10% to 15% and in some markets 25% and that did not show up in the Census spending report. But the uncertainty of what the fall brings still weighs heavy on any outlook. Still in question is whether some states may yet need to invoke temporary shut downs that were originally expected to occur in Apr-May.

After three months, there are still approximately 400,000 jobs lost without an equivalent decline in spending. Even with some future downward revisions to spending, my thoughts are we could expect many of these jobs lost for good. But this most recent data produced at least some of the correction I expected last month. The plot below of the number of jobs to put-in-place $1 billion of volume spiked downward in April by an unrealistic amount. With the most recent May-June data, spending dropped a bit more and jobs increased. This corrected the downward spike almost back up to where it was.  Spending is still subject to several revisions for a year. Don’t be surprised to see this plot move slightly higher in the near future. A higher value on this plot represents lower productivity. I would expect current conditions to result in lower productivity and eventually that should show up on this plot.

Jobs per 1B Volume PIP 2001-2020 monthly 7-2-20

My forecast updated to 7-2-20 shows spending increasing through the remainder of 2020 with almost all of the change due to restarting work that was shut down. But then as we turn into 2021, spending begins to fall slightly again through mid-year, with the emphasis on change due to loss of spending from a decrease in new starts in 2020. Still unknown, with no way to tell from the data, is how many of the projects that shut down will not restart? Also unknown is the impact of cancellations of starts for new capital investment.

Residential work posted the largest drop in spending so far, down almost 10% in three months. But even with that steep drop, residential spending is still up 9% year-to-date compared to 2019. Residential and Nonresidential Buildings posted large reductions in new starts in April and May. That will have an impact on 2021 spending. Only Non-building infrastructure is forecast to post sizable spending gains in 2020 and 2021.

Starts CF 2015-2022 7-3-20

 

 

 

Pandemic Impact #4 – Construction Jobs Recovery

4-15-20  How will each of the 4 shutdown impacts affect construction?

An estimate of the amount of construction volume lost between March and April could be on the order of 10% to 12%. We won’t see April construction spending #s until June 1st, but a loss of 10% equates to about $10-$12 billion work stopped in a single month.

Associated General Contractors of America reported 40% of construction firms had furloughed or terminated workers by April 10.

  • 30% of firms said they had been asked by government officials to shut down jobs.
  • 53% of respondents said their projects have been delayed by owners.
  • 7% said owners had canceled their projects.

NAHB 4-15-20 Builder Confidence Posts Historic Decline

If they stop buying them, next they stop building them. I’m forecasting temp shut down of 15% of residential backlog and a 10% drop in new starts.

U.S. manufacturing output posts largest drop since 1946

Think of all the manufactured products that go into construction of a new home: Doors, windows, roofing, siding, wallboard, lighting, heating, plumbing fixtures, wire, pipe, cabinets, appliances, etc. How many of these will be in short supply leading to delays in completing new or restarted work?

Pandemic Construction Forecasting needs to account for 4 types of impacts.

  • 1 Work stoppage – stay at home, how deep is the work stoppage
  • 2 Work restart – % restart/month, how slow does work restart
  • 3 Work canceled – some work never restarts, how severe
  • 4 New Starts – future capital spending plans canceled, how cautious

Spend Sector monthly 2018-2021 4-18-20 recession

The initial shutdown cumulative total spending lowest point is in April-May 2020 due to the abrupt shut down. When work rebounds, it restarts gradually over a period of months. Some of the work that shut down will not restart. Also, reduced new starts lowers the cumulative total spending again in the first half of 2021, where residential spending hits it’s low point. Here’s the jobs impact of each.

  • 1 Work stoppage – stay at home, how deep is the work stoppage

From March 15th to April 15th, it is estimated that about 10% to 12% of all construction work stopped, or about $10-$12 billion work stopped in a single month. This work remains on hold as we assess when it is appropriate to reopen the economy. A $10 billion/month work stoppage shuts down 600,000 jobs/month from Mar 15 to Apr 30, perhaps longer.

  • 2 Work restart – % restart/month, how slow does work restart

For a number of reasons, all work will not restart immediately. I’ve modeled the work to restart over 6 months. If only 33% of the stopped work resumes in May, only 33% or 200,000 of the 600,000 lost jobs return, 400,000 remain shut down. If each month 100,000 more jobs restart, the net lost time over 6 months is 1,800,000 man-months or an average of 300,000 jobs for 6 months.

  • 3 Work canceled – some work never restarts, how severe

It’s possible some work will be put on hold for a long time or outright canceled. If 10% of all work that was forced to shut down does not restart, then about 1.5% of all work in backlog disappears. There was $1.3 trillion in starting backlog leading into 2020. A 1.5% decline in backlog amounts to almost $20 billion in work that might not restart. That workload would have taken place over the next 20-30 months, so it is equivalent to about $1 billion a month. Jobs lost would equate to 4000 to 5000 jobs for 20 to 30 months.

  • 4 New Starts – future capital spending plans canceled, how cautious

Dodge is now forecasting a 10% to 15% decline in new construction starts in 2020. (Prior to the pandemic, Dodge was forecasting a 4% drop in new 2020 starts). If new starts drop by 10%, that equates to a decline of about $130 billion in future work. That would be spread out over the next 3 years or so. On average that reduces jobs by about 20,000, but that loss lasts for the next 3 years.

 

Construction spending varies from month to month, but total annual rate of spending will not return to the Jan-Feb 2020 level until at least 2023. Construction jobs may not reach the Feb 2020 level again until 2024.

See also Pandemic Impacts – Part 3 – Jobs Lost, Inflationary Cost

Expect Construction Jobs Growth to Slow in 2020

12-6-19

The construction spending forecast for 2020 indicates 2% growth. But predicted 2020 construction inflation is slightly higher than 4%. So, real construction volume in 2020 decreases by 2%. Jobs should follow volume growth, yet history shows that in non-recessionary periods, even with volume declining, jobs usually continue to increase, but perhaps at a slower rate. 

This plot shows the forecast volume decline in 2020. For the 2020 forecast we already have 80% of all nonresidential spending in backlog. Since new starts account for only 20% of the spending in the year, a 10% drop in new starts from forecast affects only 20% of the spending, so has only a 2% impact on the total. Nonresidential shows flat to moderate gains in 2020.

Residential forecast will be much more dependent on new starts in 2020. About 70% of residential spending within the year comes from new starts within the year, so quick or large changes in new starts has a huge effect on spending for the year. Residential spending is down 10% from early 2018 but residential volume after accounting for inflation is down 15% since that early 2018 peak.

Simply stated, there has not been any volume growth in the last two years to support jobs growth. In constant $, there was no volume growth in any sector in 2018. In 2019 and 2020, only Non-building Infrastructure shows growth, 2%-3%/yr.

This plot shows predicted 2020 jobs growth of 1.5% or just over 100,000 jobs. Since volume is forecast to decline, any jobs growth in 2020 will increase the disparity between jobs and volume growth. The disparity has been increasing since early 2018. It’s a 15% difference right now. Within a year that could be 20%.

Jobs vs Volume 2015-2021 1-4-20

To emphasize the growing difference, look at these two plots, actually, the same plot just modified to account for the 15% bust in 2006.

Jobs vs Volume 1991-2020 2006 deficit 11-19-19

By accounting for the 15% difference in 2006, essentially, resetting the baseline to 2006, it shows all other years up to 2017 were pretty well-balanced growth. With the exception of 2006 and now 2018-2019, for almost every year from 1997 to 2019 jobs grew pretty closely aligned with volume. A big spread occurred in 2006, then growth remained balanced through 2017. The spread now is near the same as it was in 2006.

Jobs vs Volume 1991-2020 2006 deficit reset 11-19-19

 

Construction jobs growth slowed substantially the last two quarters. I  predicted jobs growth would slow because volume growth had already been declining since early 2018 when volume reached a peak of $1,300 billion. Volume is now $1,170 billion, down 10% in 20 months.  After 6 years of jobs increasing at an average 275,000/year, jobs are up only about +150,000 in the last year, but only +48,000 in the last 7 months. The rate of jobs growth is now the slowest in 7 years. I expect this trend to continue.

The plot of jobs growth below shows current growth rate is below an annual rate of 150,000 jobs/year and it is expected to remain there through 2020, potentially dipping as low as 100,000.

Jobs trailing 12mo growth 2013-2020 12-6-19.JPG

I’d be surprised if jobs start to decline, but that certainly could be envisioned and it would help explain away some of the disparity in growth shown on the Jobs/Volume plot up above.

see also Construction Jobs and JOLTS

To Support Construction Jobs, We Need Volume

11-2-19

12-6-19 plots updated to include Nov jobs and Oct spending.

Construction Spending IS NOT Construction Volume.

I read an analyst report this week that stated construction jobs growth isn’t keeping pace with construction volume growth. The reference appeared to be to construction spending. That fails to apply inflation to convert construction spending to construction volume, so compares apples to oranges. Spending must be adjusted for inflation to get real volume growth. Jobs MUST be compared to volume.

For over two years now, construction volume growth has not supported construction jobs growth we’ve seen. I expected jobs growth to slow down. I’ve been saying this for over a year. This sure looks like it.

For 2018 jobs growth averaged over 300k. Since January 2019 the rate of jobs growth has dropped from 300k to 150k.

Jobs trailing 12mo growth 2013-2019 12-6-19

Current projected new starts data IS NOT supporting construction volume growth for the next 2 yrs. Growth of 3%/yr in non-building infrastructure will be offset by declines in residential buildings and flat nonresidential buildings. Therefore, there is no real volume support for jobs growth.

This plot adjusts construction spending by taking out inflation to get real construction volume growth. Last year of real volume growth was 2016. Yet jobs continue to climb. This can’t continue. The plot above shows it has slowed.

Jobs vs Volume 2015-2020 12-6-19

Construction jobs growth has slowed considerably over last 2Q, as expected. While construction jobs are up about +150k in last year, jobs (through Nov) increased only +48k in the last 7 months. I’m expecting this trend to continue. In fact, I wouldn’t be the least bit surprised to see in the near future some months when construction jobs decline. The fact is, construction volume simply does not support jobs growth.

Total construction volume, spending after accounting for inflation, has been down for 5 of the last 6 quarters. Volume peaked from Q1 2017 to Q1 2018, but the last year of real volume growth was 2016. Volume is flat or down while jobs continue to rise. This can only mean contractors will be at risk of being top-heavy jobs if a downturn comes.

Caution is advised if putting emphasis on construction JOLTS, which has been climbing to new highs. From mid-2006 to mid-2007, JOLTS reached near the then all-time high. But construction volume, starting in mid-2006, was already on the downward slope. Volume peaked in early 2006 and fell 10% by mid-2007. Construction did not begin shedding jobs until late 2006, but mid-2007, job losses were well underway. Within 12 months, more than 500,000 jobs were gone. Within 18 months, construction jobs were down 1.5 million.

Construction spending annual rate will increase by 3% in the next 12 months, but volume in constant $ after inflation will remain flat. In Q42020-Q12021 spending slows to less than inflation, so volume begins a modest decline. Growth of 3%/yr in non-building infrastructure will be offset by declines in residential buildings and flat nonresidential buildings. Jobs will continue to grow and spread the imbalance even more.

The construction jobs slow down has been in the cards for a long time. With all the talk of skilled labor shortages, there’s been little discussion of the unsustainable excess jobs growth. Maybe it’s about time to change the conversation.

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