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What Drives Construction Spending?
3-23-16
New construction starts drive construction spending. For all the discussion regarding the monthly rise and fall of spending, most of the spending in any given month is already predetermined since two thirds of all construction spending in the next 12 months comes from projects that were started prior to today. This is commonly referred to as backlog.
The pattern of spending does not follow the pattern of new starts which can fluctuate dramatically. It follows the pattern developed by the cashflow from all previous starts. Data for new construction starts is sourced from Dodge Data & Analytics. Cash flow is developed independently. Here’s a much simplified example of cashflow: a new $20 million project start is to be completed in 20 months, therefore we expect this project to generate $1 million of spending every month for the next 20 months.
This plot is an Index, so the ratios of starts and actual spending show the relative volume of each of these three major sectors as compared to each other.
Nonresidential buildings new construction starts were elevated for 16 out of the last 24 months. Starts were strong from February through July of 2015. A slowdown occurred in the second half of 2015 but the last four months have been gaining slowly. It looks like the backlog of elevated starts will keep spending rising at least until the end of 2016 before we see a slight dip in spending.
75% of all nonresidential building spending in 2016 comes from projects that were started between early 2014 and the end of 2015. Each month, new starts generate only 4%-5% of monthly spending. As we start the new year, backlog accounts for 95% of January spending. We know a lot about spending within the next few months, but what we have in backlog for December at the beginning of the year from previous starts accounts for only 50% of December activity. We will add about 4-5% more to December backlog from new starts each month this year.
Five out of six times in the last 18 months that nonbuilding infrastructure new construction starts jumped 25% to 50% above the running average it was due to massive new starts in the power sector. Some of these projects are worth several billions of dollars. While this causes new starts to fluctuate wildly, these projects sometimes take four to five years from beginning to completion, so the cash flow is spread out over a very long period, therefore spending does not experience the same magnitude of monthly change as starts.
80% of all nonbuilding spending in 2016 comes from projects that started from mid-2013 through the end of 2015. New starts each month generate only about 3% of monthly spending.
The average of residential starts for the last three months is higher than any time since 2007 when residential starts were already on the decline by 24% from the previous year. The volume of residential starts predicts that spending should be higher than it is currently. This could mean that some starts have been delayed. Or, it could be because residential starts have the shortest duration, they may be the most difficult to predict spending from starts.
55% of all residential building spending in 2016 comes from projects that started between late 2014 and the end of 2015. New starts each month generate almost 10% of monthly spending.
(6-5-16) RE: a discussion related to a decline in nonresidential permits suggests nonresidential spending will decline. Yes, but at what rate? Permits are directly related to new construction starts. Since every month of new starts has an impact of only 4-5% on nonres spending in every following month for the next 20-25 months, then a 10% drop in permits in a single month would cause only a 0.4% to 0.5% reduction in spending in each of the following 20-25 months. It would take a prolonged trend of declining permits and therefore declining new starts to really see a dramatic decline in spending, and then the greatest effect would be well out into the future.
Construction Volume Vs Construction Spending
Construction volume is not the same as construction spending.
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.
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.
IF Another Recession, What Would Happen to Construction?
8-15-19 See WHAT IF? Construction Recession 2020
1-27-16
The wheels of construction turn slowly.
There is plenty of talk these days of whether or not we may slip into another recession. On any given day you can read several articles pointing to why or why not we are headed into another recession. I’m not trying to take a position here. I would like to get a rough idea what would happen to this current construction recovery if we do slip into recession.
A starting baseline for this discussion is my forecast for 2016; total spending up 10%. nonresidential buildings up 14% after a 17% increase in 2015, residential up 12% following 13% in 2015 and non-building infrastructure up 1% for a total less than 2% in 2015-2016. So, you can see I’m not predicting a recession.
If you think of a recession as having an immediate affect on total construction, like a quick drop in materials prices or cost of buildings, think again. Construction is sort of like an aircraft carrier, it takes a long time to turn around.
The best indicator of future construction activity is the projected cash flow generated by all the construction starts that have been recorded. Construction starts represent the beginning of spending on new projects. Projects can take many months to reach completion. Some portion of the total project spending occurs in every month over the full duration of the project from start to completion.
We start 2016 with a backlog of projects that will generate about 70% of all the cash flow in 2016. It’s likely that most if not all of the projects already started would move on to completion. But new starts will be cut back.
To get an idea how another recession might affect construction spending, I kept all backlog as is but I reduced future new construction starts for the next two years (2016 and 2017) by 30% for residential and nonresidential buildings, and 15% for infrastructure projects. This mimics the declines we experienced from 2006 to 2009. I then allowed for a 5% increase across all sectors in 2018.
The result is a 5% drop in construction spending in 2016, still higher than 2014, but then a 10-15% drop in 2017 setting us back to near the same level as 2013.
These spending declines would cause a temporary loss of about 400,000 to 500,000 jobs.
Nonresidential buildings could still eke out a slight gain in 2016 but would drop 20% in 2017. Residential construction would drop about 5% in 2016 and then drop another 10-15% in 2017. Nonresidential infrastructure work would decline 10% in 2016, but then rebound to no change in 2017.
After two years of declines, in 2018 nonresidential buildings would climb back to near even with 2017, residential would grow 5% and infrastructure would remain flat. Total 2018 spending would climb only 2% over 2017 and would still only reach spending in 2013.
So, a 30% decline in activity for two consecutive years starting today would set us back four to five years, but the major affect would not be felt until 2017. If that were to happen, obviously spending would be revised, but also I would have much different predictions for inflation and jobs.
There’s a reason we see the dips and rises on the chart in both 2016 and 2017. It reflects the decline in the rate of new starts plus the remainder of old backlog finishing at varying end-dates. Also, given a constant amount of seasonally adjusted new starts, there is a difference in the actual amount of starts in winter months vs summer months. This plays out over time as dips and rises in spending. Spending activity will not be smooth in a recession.
What Did He Say? Fact Checker – Track Record
MY TRACK RECORD
Indoor Masters National Track Championships
masters age group 45-50
Mile – 4:41.7 – 4th place
3000m – 9:25.3 – 3rd place
Oh, wait. That’s not what you are here to read. You want my track record on construction economic forecasts. How good are my forecasts? Do they prove to be accurate? How do they compare to the rest of the industry forecasts? OK. Let’s have a look.
- Bullets show what I forecast.
This is what actually occurred. Actual is in red if I got it wrong.
From Jan 2013
- The ABI, McGraw Hill Dodge new starts and the Dodge Momentum Index (DMI) are all indicating a dip in nonresidential spending potentially from February through May 2013.
- Architecture Billings Index (ABI) went UP from May 2012 to January 2013 with only December down slightly (see figure B). This is a very good leading indicator for new construction work starting in Q3-Q4 2013.
- I expect a dip in nonresidential buildings work between January and May 2013, at which point all indicators point to sustained growth through year end.
From February 2013 through June 2013 actual spending on nonresidential buildings dropped by 2%. Then from June through November spending increased by 6%.
From Jan 2013
- As spending continues to increase, contractors gain more ability to pass along costs and increase margins. However, contractors almost always are playing catch-up. In the most recent three-month period, contractors’ costs began to climb faster than whole building costs went up, due to both increasing material costs and declining productivity.
- Once growth in nonresidential picks up and both residential and nonresidential are active, we will begin to see apparent labor shortages and productivity losses.
For 2013 and 2014 construction spending increased 7% and 10%. During that 2 year period, total labor and materials inputs increased only 2% to 3%, but construction inflation measured 4.5%. Margins increases drove up the total inflation cost. Available (nonworking) workforce declined to about 400,000, near the lowest on record. Productivity declined by 2%.
From Jan 2013
- Construction Spending for 2013 will be pushed higher by huge growth in residential construction, a rate of spending growth that increased by 30% from Q1 to Q4 2012
Residential spending in 2013 grew at a rate of 1.5% per month, largest one year growth since 2004.
From Jan 2013
- The National Association of Home Builders consensus estimate for new residential units is growth of 23% in 2013 and 33% in 2014. 2012 grew by 28%.
- The NAHB projections are for an increase of 150,000 units in 2013 and 230,000 in 2014, 20% and 27% growth the next two years. There’s a possibility we could achieve that. But, especially in 2014, that would exceed the fastest growth rates, both volume and total jobs, achieved in the last 30 years.
- Mark Zandi, economist for Moody’s, in the same article is quoted as saying his more optimistic forecast has residential construction growing to 1.1mil in 2013 and 1.7mil new housing starts in 2014, growth of 46% and then 54%. I say NO WAY
- A more reasonable projection is new housing starts may reach 850K to 900K in 2013 and 1.0 to 1.05 million in 2014, new homes growth rates of 15% to 20% and total residential spending growth of 12% to 15%. That still has the workforce expanding rapidly, but at least at a not unheard of rate.
Housing starts reached 925,000 in 2013 and 1,003,000 in 2014, well below the 30 year historical annual growth.
From Jan 2013
- Future escalation, in order to capture increasing margins, will be higher than normal labor/material cost growth. Lagging regions will take longer to experience high escalation.
- I’m advising a range of 4% to 6% for 2013, 5% to 7% for 2014 and 6% to 8% for 2015.
- Expect residential escalation near the upper end of the range.
Actual total construction cost inflation 2013 = 4.3%, 2014 = 4.7% 2015 = 2.9%. All inflation values were held to lower totals due to infrastructure work which did not have more than 2% inflation during that period and actually experienced deflation in 2015. Residential buildings inflation for 2013-14-15 was 8.9%, 7.1% and 4.1%.
Posted April 2014
- Construction Spending “residential buildings” expect $379 billion in 2014
- Construction Spending “nonresidential buildings” expect $325 billion in 2014
- Construction Spending “totals” expect $960 billion in 2014
Posted August 2014
- Construction Spending “residential buildings” expect $365 billion in 2014
- Construction Spending “nonresidential buildings” expect $314 billion in 2014
- Construction Spending “totals” expect $961 billion in 2014
2014 Residential spending = $354 billion
2014 Nonresidential spending = $320 billion
2014 Total Construction spending = $960 billion
These values prior to U.S. Census major correction to data.
Posted August 2014
- If you are pricing future construction jobs the way you always have, with 2-3 pct escalation, you are already in trouble!
- If you’re an owner with plans to construct a building in the future and you are inflating cost by only 2-3 pct, you’ve missed the boat.
Total construction inflation for 2013-14-15 was 4.3%, 4.7% and 2.9%. All years were reduced by a lack of inflation in infrastructure work. Inflation for nonresidential buildings was 3.5%, 4.2% and 4.8%. Residential buildings inflation was 8.9%, 7.1% and 4.1%.
Posted September 2014
- Real Construction Volume in 2014 (construction spending minus inflation) will grow less than 2 percent
Real construction volume in 2014 increased 4.9%. Commercial nonresidential construction started it’s current boom.
Posted Dec 2014
- Construction Spending “residential buildings” expect $405 billion in 2015
- Construction Spending “nonresidential buildings” expect $364 billion in 2015
- Construction Spending “totals” expect $1,040 billion in 2015
Posted Jan 2015
- Cash flow of new starts for nonresidential buildings indicates a 15% increase in the monthly rate of spending over the next 10 months.
- Both ABI and Starts cash flows indicate a mild slowdown in nonresidential buildings construction spending at the end of 2014 before a strong upturn in spending in 2015. Expect another drop in spending late in 2015
For the period Nov 2014 through Feb 2015, spending on nonresidential buildings stalled flat for 4 months. The monthly rate of spending increased 14% over the 10 months from Oct 2014 to September 2015. Since Sept 2015 spending has been flat.
Posted March 2015
- Even if new starts turn flat for rest of 2015, starts already recorded are indicating Nonresidential buildings construction spending for 2015 will reach 15%+ growth. My closest competitor is forecasting 12.5% growth. The average of all other industry forecasts is 8% growth.
Spending for nonresidential buildings actually hit +17% growth over 2014.
Posted July 2015
- Construction Spending “residential buildings” expect $388 billion in 2015
- Construction Spending “nonresidential buildings” expect $397 billion in 2015
- Construction Spending “totals” expect $1,067 billion in 2015
2015 Residential spending = $390 billion
2015 Nonresidential spending = $387 billion
2015 Total Construction spending = $1068 billion
These values prior to U.S. Census major correction to data.
Posted July 2015
- Nonresidential Buildings spending growth 2015 vs 2014.
- My forecast (Average all others) [closest competitor]
- Educational 7.1% (3.8%) [5.6%]
- Healthcare 6.0% (3.9%) [4.0%]
- Commercial/Retail 5.5% (11.8%) [8.4%]
- Lodging 24.0% (13.7%) [17.1%]
- Office 21.1% (13.5%) [19.2%]
- Manufacturing 49.6% (15.9%) [24.6%]
Educational 6.7%
Healthcare 4.6%
Commercial/Retail 8.4%
Lodging 30.8%
Office 21.9%
Manufacturing 47.3%
So there you have it. Several years of forecasts and how they turned out. You can get an idea of my track record. You be the judge. 🙂
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.
Updated 1-23-16 Forecasts of 2016 Nonres Buildings Construction Spending % Growth
Updated 1-23-16 – CMD, FMI and I have updated 2016 construction spending forecast in the last month and the latest is included in this table.
Original post 12-21-15
Below are early Q3-Q4 2015 forecasts for growth in 2016 nonresidential buildings construction spending markets.
Seven firms posted forecasts for spending growth. My 12-21-15 forecasts include new starts through November in my projection.
Most of the starts that will generate spending next year are already in place. For the 2016 forecast, new starts booked through December 2015 will contribute 75% to nonresidential buildings spending. We expect new starts growth in nearly every market. However, the pattern of spending will not be a constant upward slope.
Don’t expect 2016 forecast to change much with the last month of data. Commercial/Retail, Office and Manufacturing have been declining in recent months and are expected to continue to drop. Institutional work is on the increase.
As in the 2015 spending growth forecast, I’m well outside the range of predictions for several building types, particularly Educational, Healthcare, Amusement and Office. However I’m OK with my contrary positions since I had the same regarding 2015 spending and now as we near year end I may potentially have had the closest forecast for 5 or 6 of the 7 markets.
Look back at this chart a year from now to see how we did.
Construction Spending 2015-2016 – How Do The Forecasts Compare?
Throughout the year a number of firms provide forecasts of construction spending. Spending projections give us an indication of the level of activity to expect. Here’s a summary of the most recent forecasts.
Actual spending put-in-place for October year-to-date (YTD) became available December 1st and new construction starts for October became available November 23rd. My GBCo 12-5-15 forecast includes both of those data updates. Not all these firms have yet incorporated the October data into their analysis and some will update in the near future. Most all of these values will be updated in January. Also, the AIA semi-annual Consensus report, forecasts of nonresidential buildings only, will come out in January. Again I’ll point out, my numbers have not changed much since July when I predicted $1067 for total, $388 for residential and $397 for nonres bldgs spending in 2015. Click on this link to an older post that shows the midyear predictions for three firms.
Once spending data through September is available it allows an analysis of a select data set that gives a prediction of the year end result within +/- 1%. I use this analysis to check my forecast. It indicates 2015 should finish with total spending between $1.067 trillion and $1.087 trillion and nonresidential buildings spending between $386 billion and $395 billion. The actual spending total has not fallen outside the statistical range since 2001, as far back as I’ve been tracking the data. I’m confident that total spending for the year will fall within this predicted range. My 2015 forecast of $1.067 trillion total and $397 billion for nonresidential buildings falls within those ranges.
Spending in any given month is the sum total contributed by all the projects that started and are currently underway. That includes spending from projects that started recently with foundations just coming out of the ground and also projects that started 18-36 months ago that are near completion. Spending patterns are affected mostly by the pattern of starts recorded over the period 12-36 months ago. New starts will generate the next 2 to 3 years of spending. Only if the starts pattern is even in growth will spending be even in growth. That will not be the case in 2016.
What we do know is that most starts that will generate spending next year are already in place. For the 2016 forecast, new starts booked through December 2015 will contribute 75% to nonresidential buildings spending, 55% to residential spending and 80% to spending on nonbuilding infrastructure. The pattern of spending will not be a constant upward slope.
This table compares all 2015 values to the final of $330 billion in 2014. For 2016 each firm is compared to their own 2015 value. Once an actual value is determined for 2015 (which won’t be until March 1, 2016) I cannot be certain if some other firms forecast dollars change or percent floats. In the Gilbane forecast, 2016 percent would float. This will also affect the 2016 values in the first table in this blog post.
Construction Spending Forecast 2015 – 2016 Both Up 11%
The data continues to get tighter with each new release. This forecast is updated Dec 5th to include US Census October spending released Dec. 1 and Dodge Data & Analytics construction starts October released Nov. 20.
The six major nonresidential buildings markets reported here represent 90% of all nonresidential buildings and the three infrastructure markets represent 75% of all nonbuilding infrastructure. This gives a good picture of which markets contributed the most (least) to 2015 growth and which will offer the most (least) support to 2016 growth.
My forecast is construction spending for 2015 will total $1.069 trillion supported by an 18% increase in nonresidential buildings spending. For 2016 expect spending to total $1.187 trillion with increases of 15% in both residential and nonresidential buildings.
With the October spending results included, robust data allows predicting 2015 year-end results with great confidence. For the 2016 forecast, new starts booked through December 2015 will contribute 75% to nonresidential buildings spending, 55% to residential spending and 80% to spending on nonbuilding infrastructure.
This forecast may be revised slightly for the upcoming Winter Construction Economics report.
Construction Spending – Reports of It’s Death May Be Greatly Exaggerated
Is activity climbing or declining? Will costs go up or down? Will we have a winter slowdown? Where are the markets headed? I read an article this morning that stated “momentum is losing steam.” Is it?
I’ve been gathering Construction economic reports for comparison and I see some predictions for 2016 that frankly are only about what I’m predicting for 2015. To be fair, there are reliable predictions that indicate growth similar to what I predict. When data was available for two thirds or better of 2015 total activity there were still predictions for how specific markets would finish the year that varied by as much as 20% to 30%. In one instance the year-to-date actual through September has already exceeded the year end estimate from one firm. Surprising, once that much actual year-to-date information is in hand that there could be that much variation.
And how will markets perform in 2016? Here’s a few examples from a variety of sources; educational, healthcare, lodging and manufacturing all have more than one estimate for 2016 growth in the range of 0% to 4%, values that would not keep spending growth up with inflation, meaning volume would actually decline. My estimates for those markets are all 10% or higher. Variations of 10% to 15% in growth are common in the data.
So, here’s a few comments on predictions and on what to expect.
Unless something Earth-shattering happens, there is a select set of monthly data that statistically predicts the yearly outcome for total spending and market spending, within +/-1.5% for a smaller data set and within +/-1% for a slightly larger data set, but you have to wait longer to get that larger data set. It failed once in 14 years, by 1/2 of 1 percent. The same analysis can be performed individually for markets and sectors. The potential variance increases for some markets to about +/-3%.
The Dodge Momentum Index and the AIA Inquiries index are leading indicators to potential future work. They foretell activity in the Architectural Billings Index (ABI), which is a leading indicator to new construction starts. New starts provide the future cash flows for spending.
Spending in any given month is the sum of how much can be put-in-place generated by the cash flow from each of the project starts that got booked in the previous year or two, or three for long duration projects. For the next month the unknown amount is only about 3% or 5% that will be generated by new starts in the most recent 30 days. The remainder is already booked. Two months out the prediction includes 6% to 10% uncertainty, and so on.
Expect a winter slowdown. It’s not because of the weather. There may be additional repercussions if we experience severe weather, but the slowdown is predetermined because very large starts that got booked from a year to two years ago are reaching completion and dropping out of the monthly spending. Starts can be erratic. This causes periodic fluctuations in monthly spending. It’s normal.
Also what may not be apparent is what happens due to the difference in seasonally adjusted (SA) and not seasonally adjusted (NSA) values. Readers most often track the changes in SA values, but spending is generated from cash flow and cash flow is generated from the NSA values. Differences can be huge. As an example, August starts with an SA of $300bil produce 50% more actual NSA dollar volume to cash flow than February starts with an SA of $300bil. This may cause erratic spending patterns.
Residential spending will slow several percent to a low point in February before resuming upward momentum to finish the year stronger than 2015. Periods of low start volumes need to work their way thru the system and this produces growth patterns with periodic dips.
Nonresidential buildings will slow only moderately in the next few months before we see 15% growth through the middle of the year, only to see another slowdown late next year, leading into a considerably slower 2017. Office new construction starts in 2015 are up 50% from 3 years ago, educational up 25% over same period. Manufacturing starts are down 70% in 2015 and that is still at the second highest ever recorded. Total spending is still strong in 2016 at 10% growth. Major contributions appear from institutional work in educational and healthcare. Office and manufacturing still provide very strong support to growth.
Infrastructure projects spending will decline for 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. I’m currently predicting spending will grow less than 2% in 2016, held down by a 10% drop in Power the second largest component of infrastructure work.
Mixed within the three sectors above are Private and Public spending. Residential is about 98% private and makes up about 50% of all private work. Along with manufacturing and large portions of power, commercial/retail, office and healthcare makes up nearly 90% of all private work. Private growth is the sum of the parts, predicted at 10%+ for 2016. Public work is all or a large portion of highway/street, educational, transportation and sewage/waste. Along with small contributions from water and a portion of power, these markets comprise 80% of all public work. Again, the sum of parts shows growth at 8% in 2016.
From the middle of Q1’16 to the end of Q3 we will register an annual growth rate of 20%, but due to the dips at the beginning and the end of the year total 2016 construction spending growth will come in at 11%. Construction spending momentum is not losing steam. We are seeing the affect of a few years of erratic growth patterns and a shift from commercial to institutional work.
Construction Spending Nonres Bldgs on a Roll > What it Means for Inflation
This is clearly going to measure up as the breakout year for spending on nonresidential buildings. Growth year-to-date (YTD) is up 18.3%. We will finish the year with total growth up 17%. The last time we saw growth like this was 2007. In fact, 2007 is the only time % growth (and $ volume growth) was ever larger than this year.
Since last December I have been predicting a range from 14% to 20% growth in 2015 nonresidential buildings spending. It looks like we will finish the year right in the middle of that range.
By far the largest $ contribution comes from the growth in manufacturing buildings, up 50% and up $23bil YTD. Next closest is office buildings, up 22% and up $8.3bil YTD. Lodging, Commercial-Retail, Educational and Amusement-Recreation are each up approximately $4bil YTD, quite impressive for Lodging and Amusement-Rec since they both total only $17bil YTD.
Nonresidential buildings spending will maintain greater than 10% growth in 2016 something achieved only 5 times in 25 years. Next year, educational and healthcare buildings will both contribute strongly to the total annual growth. Manufacturing, Office and Lodging will all settle back but still maintain 10% or greater growth. Commercial-retail, which had 3 years of substantial growth from 2012 to 2014 adding nearly 50% spending growth during that time, will grow only 2-3% next year.
With last year, this year and next, nonresidential buildings spending will reach growth of 40% in three years, a growth rate exceeded only once in history, during the last construction boom from 2006 to 2008. Along with that boom in spending came the highest construction inflation ever recorded, an average inflation over 8% per year for 4 years. I expect we are headed there again.
revised / updated table 12-9-15 to include ABC & BMarkstein forecasts.
Construction Analytics 