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Construction Spending Sept 2016
11-1-16
September data for construction put-in-place was released today. Year-to-date (YTD) spending is up 4.4% over last year. With September first data release at $1,150 bil SAAR, this seems to establish that we’ve clearly passed a forecast dip in spending that bottomed in April and May. We’ve now had 4 months of spending up from the previous quarter and all up from the same respective months in 2015.
One thing that stands out in the data; so far every month in 2016 construction spending has been revised upwards after the first data release, by an average of +1.2%. Checking back to Jan 2014, all but once spending was revised up after the first number released.
For the 1st eight months of 2016, six of eight times the first comparison of spending showed a decline this month vs previous month. After revisions, the final values show only one month/month comparison was down.
June data which appeared quite low at first has now been revised up by +1.8% (+$21bil saar), with most of the June revision in nonresidential buildings. Most of the July revision was to residential spending. The last three months of construction spending on average have been revised up by +1.5% each.
So, even though the first print shows September down -0.4% from August, historical data would indicate we could expect September to get revised up, perhaps by 1%+ which would result in September finishing higher than June, July or August. Of course, there is always the chance it might get very little increase, and August could still get revised.
Residential spending is up 5.7% ytd and is on track to finish 2016 at $470bil, +6.6% over 2015. Last year, peak spending was in September, then residential spending dropped slightly in Q4 2015. This year I expect 2016 spending to peak in Q4, so we should see ytd performance get better as we approach year end. Cash flow from new starts indicate growth of 9% in 2017 spending.
Total Nonresidential spending is up 3.6% ytd, on track to finish 2016 at $700 bil, up 4.2% over 2015. Almost all the 2016 growth is in nonresidential buildings, not infrastructure.
For the 3rd quarter 2016, compared to the same quarter in 2015, nonresidential spending is up only 1%, but the spending patterns are not apparent unless we separate nonresidential buildings from non-building infrastructure.
For the 3rd quarter 2016, compared to a year ago, nonresidential buildings spending is up 7% and non-building infrastructure is down 6%.
Nonresidential Buildings spending is up 8% ytd through September, led by Office, Lodging and Commercial Retail markets. We should finish 2016 up 8% with a total at $410 billion vs. $379 billion in 2015. Total sector growth for the last three years is 35%. I’m predicting 2017 spending for Nonresidential Buildings will increase 8%, led by Educational and Office spending.
The market share percent of total nonresidential buildings for each market is:
educ=22%, mnfg=19%, comm=18%, offc=17%, hlthcr=10%, lodg=7% and amus/rec=5%.
Office construction spending 2016 growth will be 20%+, now greater than 20%/yr for three consecutive years. At 17% market share, by far it is the largest contributor to nonresidential buildings spending growth in 2016, contributing +3.7% growth.
Lodging is expected to finish 2016 up 26% and has averaged greater than 25%/yr growth for four years. But lodging has only 7% market share, so contributes only +1.8% growth to nonresidential buildings.
Commercial Retail is up 9% with 18% market share and so contributes +1.6% to overall nonresidential buildings growth. For the three-year period 2012 to 2014, commercial averaged 14% growth.
Educational spending, up 5% at 22% of the market, contributes +1.1% to overall nonresidential buildings growth in 2016. Educational spending should finish 2016 up 6%.
Manufacturing buildings present a unique situation in 2016. Manufacturing is down -2.4% ytd. At 19% market share, that reduces total nonresidential buildings growth by -0.5%. On the surface, manufacturing is lowering total nonresidential buildings growth. Although manufacturing spending is down, it’s still very high, so it’s impact should not be viewed as negative to the overall sector. Spending increased 50%+ in 2014 & 2015. Spending in 2016 will still be the 2nd highest year on record, down only slightly from 2015 but still more than 30% higher than 2014 and more than 50% higher than 2013.
Educational spending is 80% public and 20% private. In public markets educational is only up 4% ytd, but in private markets it’s up 10%. Private spending is driving total educational to $89 billion for 2016, up 6% from 2015. 2016 will be the best year since 2008. 2017 may reach 7% to 8% growth.
60% of all public work is infrastructure. Education accounts for 25% of public work. Educational is by far the largest building type in public work. All the remaining building types contribute only 2% to 4% each.
We are currently at what I expect could be the 2016 nonres bldgs spending peak, with very little gains across Jul-Aug-Sep-Oct. Nonres bldgs spending may flatten or drop for several months before resuming the climb. This drop may be in large part due to uneven starts from the end of 2014 and beginning of 2015, a period when starts were abnormally high, that are now finishing and dropping out of the monthly spending values. Usual normal growth patterns do not fill the void left when abnormally high volume of projects finish.
Nonbuilding Infrastructure spending is down 1% ytd. Cash flows from starts predicted this drop. The biggest negative drivers are Transportation, Sewage/Waste Disposal and Water Supply, each contributing more than 0.5% to the total decline. Power, the largest infrastructure market at 33% of total, is up 4% ytd so adds +1.33% to growth, tempering some of the declines. Spending in 2016 will reach $292 billion, down less than 1% from 2015. Growth resumes in Q1 2017.Although new starts in 2016 will finish down 10%, starts in 2015 were so high that 2016 will still be a good volume of new starts. Cash flows from all existing starts are predicting 2017 will be a record year for spending on infrastructure, up more than 6% from 2016.
My forecast for total spending in 2016 is $1,170 billion, up 5% from 2015. I expect 8% growth in 2017.
U S Census September Construction Spending Released 11-1-16
See also this post from October Starts Point to Robust 2017 Spending
Public Construction Spending 2016-2017
10-21-16
updated 2-16-17 edited to include 2016 year-end total$ public vs private
The two largest components of Public Construction Spending, by far, are Highway/Bridge/Street and Educational Buildings. These two markets have more impact on the magnitude of public spending than any other markets. All of Highway ($90bil) is public spending. About 80% ($70bil out of $88bil) of Educational buildings is public spending. Together they add up to 55% of all public construction spending.
The next three largest public markets in order are: 70% of Transportation ($30/$42bil); all of Sewage/Wastewater ($22bil) and all of Water Supply ($12bil). These three markets account for only about 22% of public spending. Eight remaining markets, none larger than 3.5% of the total public sector, combined make up ~20% of total public spending. Five of those eight, Office, Health care, Public Safety, Amusement and Power, each account for $8 to $10bil and each is 3% to 3.5% of Public work.
Public Construction Spending average for the first six months of 2016 was the highest since 2010 and is up 10% from the Q4’13-Q1’14 low point.
Public spending finished 2016 down 0.8% from 2015, but that is down from a near six-year high, so spending is still strong. It is still -9% below its 2009 peak.
The biggest mover to total public spending this year is educational spending. Public educational spending in 2016 is up 4.7%. Because it represents 25% of all public spending, it has a net impact of moving total public spending up +1.2%, greater impact than any other market.
Public commercial spending is up 24% but has only a 1% market share of public work so moves public spending by only +0.24%. Power is down -20% but at a share of only 3% moves public spending by only -0.6%. Public components of office, public safety, sewage/waste disposal and water supply are all down by a combined -7%. At a combined market share of 18% that nets a -1.26% reduction in total public spending.
Public spending peaked in 2009 when Educational buildings spending was at its highest. Highway spending has been at or near its peak for the last 16 months but that, with current educational spending, which is still more than 20% below its peak, has not been enough to carry public spending to new highs.
Expected spending predicted from new construction starts gives a much better picture for 2017.
Highway/Bridge/Street starts in 2015 finished just shy of a 6-year high (in 2013) but 2016 was down 13% from 2015. On average 2015+2016 starts are still 5% higher than 2014. Highway projects are long duration, so very good starts from the end of 2014 and the beginning of 2015 will still contribute strong spending well into 2017. Highway spending is expected to finish up slightly over 2016.
Educational new starts in 2016 finished the year up 11%, posting a 4th consecutive annual increase and educational spending for 2017 should finish up 10%.
Transportation spending in 2017 should increase 6%.
Overall, total public construction spending in 2017 is predicted to grow by 8% to 9%, the first substantial growth since 2007, reaching new highs in the 2nd half. Educational spending will take the lead in 2017 public work. Historically, public spending increases by less than 10% per year.
Construction Spending Gets Revised UP
10/6/16
A common headline we see when Census releases monthly figures for Total Construction Spending is “Spending Unexpectedly Declines Mo/Mo.” Here’s why that is almost always misleading. Construction spending gets revised, UP, usually. So, the first number released is generally low.
U S Census report for August Construction Spending released October 3 posts August at a seasonally adjusted annual rate (SAAR) of spending at $1.142 billion, down 0.7% from July and this reduces the year-to-date (YTD) spending from +5.6% last month to now only +4.9% higher than the same 8 months of 2015.
- Construction Spending for Nonresidential Buildings Aug vs July UP 0.4%, 6th monthly increase this year. YTD is UP 8.2% from 2015.
- Construction Spending for Nonbuilding Infrastructure Aug vs July DOWN 2.2%, 5th monthly decline this year. YTD is DOWN 0.4%.
- Construction Spending for Residential Aug vs July DOWN 0.2%, Only 2nd monthly decline this year. YTD is UP 6.2%.
Comparisons using the first print of data almost always reflect a lower mo/mo or yr/yr growth rate than the final actual result because the first print “unadjusted value” is being compared to previous month or last year “adjusted values.” Construction spending, from 1st release to last revision of data, has been revised upward every month since August 2013. That would indicate the first reports of an “unexpected decline” almost always get revised up in following months.
The latest spending release is pending revision for the next two months and then the whole year gets one (usually final) revision in the middle of next year. Sometimes there is a second annual revision the following year.
Total construction spending, from 1st release to last revision of data, has been revised upward in the last 32 months by an average of +2.3%/month. However, the average revisions for the last 12 months have averaged only +1.3%/month. Sometimes the 1st revision is down then the 2nd up. Downward revision is rare. The very strong historical trend is for upward revisions after the first release of monthly data.
Some examples of revisions:
- Total construction spending over the last 12 months has been revised UP 10 of 12 times. The average of all revisions is +1.3%/month. Monthly revisions have ranged from -0.5% up to +3.4%.
- Office spending has been revised UP 4 of 7 times in 2016. The average revision is nearly flat but revisions have ranged from -3% to +6.5%.
- Commercial spending has been revised UP 4 of 7 times in 2016. The average revision is +1.1%/month. Revisions have ranged from -1.5% up to as high as +8% for a particular month.
- Residential spending has been revised UP 6 of 7 mo in 2016. The average revision is 2.1%/month. Monthly revisions have ranged from -1.6% to +7.5%
- Power Infrastructure has been revised UP 6 of 7 times in 2016. The average revision is +4.7%/month. Revisions have been as high as 9% for a particular month.
For 2016, final data won’t be published until July 2017, but so far through July, monthly revisions have reversed 4 out of 5 initial mo/mo declines to increases.
For all of 2013, 2014 and 2015, the average month/month growth rates increased from an initial reading of +0.14% to a final reading of +0.76%.
For all of 2014 and 2015, the average year/year growth rates increased from an initial reading of +8.1% to a final reading of +10.8%.
Construction Spending 2016 – Midyear Nonresidential Markets
Construction Spending 2016 – Nonresidential Markets
9-8-16
Refer here to the Construction Spending 2016 Midyear Summary
Nonresidential Buildings
Nonresidential Buildings spending for July totaled a SAAR of $403 billion, down slightly from June but up 1.3% from the May dip. Spending YTD for nonresidential buildings through July is up 8.0% over 2015. The current 3-month average of $403 billion is up slightly from the 1st quarter but is still 9% below the peak in 2008.
How does actual spending YTD compare to my early 2016 forecast?
Nonresidential Bldgs predicted YTD $236.9b, actual YTD $228.1b (-$8.8bil, -3.7%).
Nonresidential Buildings spending for 2016 predicted in Dec 2015 $439.2b. Now with YTD data through July forecast spending for 2016 is $410.9b (-$28.3bil, -6.4%).
Total Nonresidential Buildings construction spending increased 9.7% in 2014 and 13.8% in 2015 and will grow 8.5% in 2016 and 6.3% in 2017.
Nonresidential Buildings Spending History
- 5 years 2004-2008 up 64%
- 3 years 2006-2008 up 45%
- 3 years 2009-2011 down 36%
- 2 years 2014-2015 up 25%
Manufacturing construction spending YTD is down 2.6% from 2015. However, that is because 2015 manufacturing construction spending reached all-time highs after record new starts in 2014, some of which will extend spending into 2017. 2016 is on track to reach the second highest year of spending on record, only slightly below 2015. Although new starts YTD in 2016 are down 75% from 2015, that will have most affect next year. A very large volume of starts in mid-2014 and early 2015 will generate spending extending into the 2nd half of 2016and early 2017. Total manufacturing construction spending for 2016 will finish 2% below 2015. Due to declining new starts in 2015 and 2016, spending in 2017 will drop more than 10%, and yet still be the 3rd highest year on record. Manufacturing construction represents 19% of total nonresidential buildings spending.
Office construction spending YTD is up 22% from 2015. Although new starts are currently down slightly from last year, starts are expected to grow 4% for 2016. Office starts have been strong since 2013. Vacancy rates peaked in 2010 and demand for office space has been increasing. A large component of office construction is data centers. Although we may see a few months of spending declines in late 2016, the large volumes of spending generated by several years of strong starts will keep total spending high. Office construction spending increased 23% in 2014 and 19% in 2015 and it will grow 23% in 2016 and 15% in 2017. Office construction represents 17% of total nonresidential buildings spending.
Commercial construction spending YTD is up 11% from 2015. Commercial new starts have been increasing slowly for the last 4 years. Spending will remain nearly flat for the next several months and is forecast to grow very slowly through mid-2017, then taper off slightly. Commercial construction had its biggest years in 2012-2013-2014 with growth of 11%, 12% and 18%. Total commercial construction spending for 2016 will finish 9% higher than 2015 and 2017 will grow 3% to 4%. Commercial construction represents 18% of total nonresidential buildings spending.
Lodging construction spending YTD is 29% higher than 2015. Lodging construction spending has exceeded the growth rate of all other markets. Starting in 2012 annual spending increased 19%, 25%, 24% and 30%. However, during that time lodging averaged only 5% of total nonresidential buildings spending. It now represents just under 7%. Total lodging construction spending forecast growth for 2016 is 25%. For 2017 expect spending growth of only 8%.
Educational construction spending YTD is up 4.8% from 2015. Educational buildings spending experienced the longest downturn of any market, declining for 5 consecutive years from 2009 through 2013. It has been slow to recover with 2015 showing the first real growth of only 4.8%. 2014 marked the beginning of the turn but registered growth of less than 1%. New starts posted 15% growth in 2014 and then slowed to only 4% growth in 2015. However, a large volume of those starts occurred in late 2014 and then again in early 2015. The timing of these starts generates a lot of spending in late 2016. I expect spending in the 2nd half 2016 to grow 5% over the 1st half. Total educational construction spending for 2016 will finish 8% higher than 2015 and 2017 will grow 9%. Educational construction spending is the largest component of nonresidential buildings representing 22% of total nonresidential buildings spending. Before the 5 years of declines it represented 30% of nonresidential buildings spending.
Healthcare construction spending YTD is up only 2.3% from 2015. Healthcare new starts since 2011 increased only in 2014. Spending may see some moderate declines in late 2016 before resuming slow growth in 2017. Changes and uncertainty in the healthcare climate are having a dampening effect on spending growth. Total healthcare construction spending for 2016 will finish only 2% higher than 2015 and 2017 will grow 3% to 4%. Healthcare construction represents 10% of total nonresidential buildings spending.
Amusement/Recreation construction spending YTD is up 10.1% from 2015. New starts were very strong in 2013 and 2014 and generated strong spending increases of 10% and 18% in 2014 and 2015. However, starts in 2015 declined slightly and 2016 starts to date have been flat. Spending through 2016 will remain strong but we will experience moderate declines in the 1st half of 2017. Total Amusement/Recreation construction spending for 2016 will finish 12% higher than 2015 but 2017 will grow only 2%. Amusement/Recreation construction represents 5% of total nonresidential buildings spending.
Non-building Infrastructure
Non-building Infrastructure spending for July fell to a SAAR of $289 billion, down slightly over for the last four months. YTD spending through July is up only 1.3% over 2015. Spending began to slow in April and May and is now at the 2016 low. The current 3-month average is down 4% from the 1st quarter. However, spending on non-building infrastructure reached an all-time high in the first half of 2014 and has remained near those highs through 2015 into the 1st quarter of 2016.
How does actual spending YTD compare to my early 2016 forecast?
Non-building Infrastr predicted YTD $156.2b, actual YTD $160.5b (+$4.3bil, +2.8%).
Non-building Infrastrusture spending for 2016 predicted in Dec 2015 $293.2b. As of July data forecast spending for 2016 is $297.3b (+$4.1bil, +1.4%).
Total Non-building Infrastructure construction spending increased 8.8% in 2014 but decreased 1.5% in 2015. It will grow only 1.2% in 2016 but then 9.6% in 2017.
Non-building Infrastructure Spending History
- 7 years 1995-2001 up 56%
- 4 years 2005-2008 up 60%
- 3 years 2009-2011 down 8%
- 3 years 2012-2014 up 19%
Power construction spending YTD is up 6.0% from 2015. Power new starts are erratic. Also some power projects are very long duration from start to finish. In 2012 starts totaled over $50 bil., in 2013 only $30 bil. and in 2014 less than $25 bil. In 2015 starts reached an all-time high of $56 bil. The power construction spending pattern for 2012-2015 was +30%, -4%, +18%, -16%. Many of the starts in 2012 supported 18% spending growth in 2014, yet not much of the record year of starts in 2015 supported spending in 2015. Although new starts in 2016 are forecast to drop by 30%, that’s still over $40 bil. and more than in 2013 or 2014. Part of the reason for a drop in spending in 2016 is the tailing off of projects that started in previous years combined with the fact that 2013 and 2014 were “lean” years. Cash flow of starts determines spending and it follows the erratic flow of starts. A very high volume of starts in early 2015 will generate spending extending out through 2019. I’m forecasting total power construction spending for 2016 will finish only 1.2% higher than 2015 and 2017 will increase 7%. Power construction represents 32% of total non-building infrastructure spending.
Highway/Bridge/Street construction spending YTD is up only 2.5% from 2015. Some highway and street projects are long duration from start to finish. Although new starts in 2015 increased by 11%, that was significantly unbalanced with two very high months of new starts in the 1st quarter and below average starts for almost the entire 2nd half of 2015 and the 1st half of 2016. The very high months have starts with much longer duration so do not add significantly to monthly spending, they spread the spending over a longer period of time. Spending has declined in 8 out of the last 12 months. I’m expecting declines in 6 out of the next 12 months. Yet the plus months will still carry both 2016 and 2017 to spending growth. I’m forecasting total highway/bridge/street construction spending for 2016 will finish 4.5% higher than 2015 and 2017 will increase 8%. Highway/Bridge/Street construction represents 32% of total non-building infrastructure spending.
Transportation/Air/Rail construction spending YTD is down 2.4% from 2015. YTD spending is 9% lower than what I had predicted in my early 2016 forecast. There is a disconnect between where Dodge reports transportation starts and how U S Census reports transportation spending, so it is difficult to directly relate the two. I’m forecasting total transportation construction spending for 2016 will finish 2.5% higher than 2015 and 2017 will increase 6%. Transportation construction represents 16% of total non-building infrastructure spending.
Construction Spending 2016 – Midyear Summary
Summary 2016 Construction Spending
9-7-16
Total Construction Spending for July reached a seasonally adjusted annual rate (SAAR) of $1.15 trillion, level with June which was revised upwards by $20 billion or nearly +1.8%. Monthly spending always gets revised in subsequent months. This year every month but May, which remained nearly unchanged, has been revised upwards, by an average of +1.4% and as much as 3.4%. Monthly values are subject to revision for two months after the first release and once again in May of the following year.
This plot, Construction Spending vs New Starts Cash Flows, shows actual spending (SAAR) by sector through July 2016 and projected trends of spending out to July 2017.
Previously I wrote that we should expect a short duration downturn in spending occurring between January and March. The expected monthly spending cash flows that would be generated from uneven new starts over the last two years indicated that a slowdown in spending would occur during the first quarter 2016. As it turns out, first quarter spending was much stronger than expected, averaging $1.17 trillion SAAR, primarily due to outstanding results in February and March for residential spending. But then April and May experienced significant declines, dropping to an average of only $1.14 trillion SAAR, down almost 3% from Q1. Now with June and July spending both up 1% from the April and May lows, it looks like we may be past that short duration downturn.
Total Construction Spending year-to-date (YTD) through July is up 5.6% over the same seven months 2015. Spending slowed in April and May from a 1st quarter average of $1.17 trillion that reached close to a 10 year high and falls just 4% short of the all-time high. However, it must be noted, that compares unadjusted current dollars, values of all dollars current in the year spent.
When comparing inflation adjusted constant dollars, all dollars adjusted to the same point in time, we can see 2016 spending is still 18% below the 2006 highs.
Total spending YTD through July is slightly ahead of what I predicted back in December, but it’s slightly below what I expected for May, June and July . I expect 2nd half spending to average above $1.2 trillion SAAR, but slightly lower than I originally forecast.
I’ve revised my 2016 spending forecast down slightly to total $1.190 trillion, up 7% from $1.112 trillion in 2015.
How does actual spending YTD compare to my prediction at the beginning of the year?
- Total predicted YTD through July $638.2b, actual YTD $647.7b (+$9.5bil, +1.5%).
- Residential predicted YTD $245.1b, actual YTD $259.2b (+$14.1bil, +5.8%).
- Nonresidential Bldgs predicted YTD $236.9b, actual YTD $228.1b (-$8.8bil, -3.7%).
- Non-building Infrastr predicted YTD $156.2b, actual YTD $160.5b (+$4.3bil, +2.8%).
Where are the revisions?
The single largest reduction in spending is in Nonresidential Buildings Manufacturing. Although there are other variances, that could account for the entire revision downward. Predicted construction starts for Manufacturing was lowered by nearly 35% after the initial start-of-year forecast was made.
Non-building Infrastructure spending increase is being supported by a 20%+ increase in power, which I didn’t expect. New starts for power projects have increased more than 20% since the initial forecast.
Residential construction had unusually large gains in February and March, almost all of that in residential renovations, offset only partially in April through July by declines mostly in new single-family housing.
Here’s my revised 2016 spending forecast based on YTD spending and new construction starts through July, compared to my prediction in December 2015.
- Total predicted Dec 2015 $1,206.2b, July 2016 $1,189.9b (-$16.3bil, -1.4%).
- Residential predicted Dec 2015 $473.8b, July 2016 $481.8b (+$8.0bil, +1.7%).
- Nonresdntl Bldgs predicted Dec 2015 $439.2b, July 2016 $410.9b (-$28.3bil, -6.4%).
- Non-bldg Infrastr predicted Dec 2015 $293.2b, July 2016 $297.3b (+$4.1bil, +1.4%).
Spending and construction starts are often confused by some analysts who refer to starts data as spending. Starts represent total project value recorded in the month the project begins. To determine spending activity, starts values must be spread out over the duration of the projects. Spending is dependent on cash flows each month generated from all previous construction starts. Cash flows expected based on Dodge Data construction starts are indicating a return to growth in spending in the 2nd half 2016. (See chart above Index Actual Construction Spending vs New Starts Cashflows).
Spending Breakout by Sector
Residential construction spending for July totaled a SAAR of $452 billion, remaining near level for the last four months. Residential spending YTD through July is up 6.5% over 2015. Spending slowed in April and May from a very strong 1st quarter average that reached close to a 10 year high. The current 3-month average is just 1% below the 1st quarter and is still at its highest since the 2nd half of 2007 but is 10% below the current dollar all-time high in 2006. I’m still expecting some upward revisions to June or July residential spending.
Residential spending just experienced the strongest three-year stretch of spending growth on record, up 60% in 2013-2014-2015. After taking out inflation, volume growth was only 31%, but that is still the strongest ever for three consecutive years. Spending growth in 2016 will reach only +9%. After adjusting for inflation that represents volume growth of less than +4%, the slowest in 5 years. New starts YTD (as reported by Dodge Data) although down from the 1st quarter, are still near post-recession highs. Starts from late 2015 and early 2016 will still be generating spending into early 2017. 2017 will repeat nearly identical to 2016. What we may be seeing is that it might be difficult to register another year of very high percentage growth in 2016 or 2017 because it is being measured against the 2015 10-year high. Another factor limiting very high growth may be a limited supply of labor to expand the workforce.
Total Nonresidential SAAR spending for July is $701 billion, down slightly from June, but monthly SAAR has varied only +/- 1% for the last six months. YTD spending compared to 2015 is up 5.1%. Nonresidential spending also slowed in April and May but is now up 1.5% from those lows. The current 3-month average is up slightly from the 1st quarter and is just 3% below the pre-recession 2008 current dollar high.
Nonresidential Buildings spending for July totaled a SAAR of $403 billion, down slightly from June but up 1.3% from the May dip. Spending YTD for nonresidential buildings through July is up 8.0% over 2015. The current 3-month average of $403 billion is up slightly from the 1st quarter but is still 9% below the peak in 2008.
Non-building Infrastructure spending for July fell to a SAAR of $289 billion, down only slightly over for the last four months. YTD spending through July is up only 1.3% over 2015. Spending began to slow in April and May and is now at the 2016 low. The current 3-month average is down 4% from the 1st quarter. However, spending on nonbuilding infrastructure reached an all-time high in the first half of 2014 and has remained near those highs through 2015 into the 1st quarter of 2016.
9-7-16
Public spending average for the 1st six months of 2016 is the highest since 2010 and is up 10% from the 2014 low point. YTD public spending is up 0.2% from 2015. All of Highway plus 80% of Educational makes up 55% of all public construction spending. The next largest markets, all of Sewage/Wastewater plus 70% of Transportation accounts for only 19% of public sending. All other markets combined make up less than 20%.
The biggest mover to total public spending this year is educational spending. Public educational spending is up only 4.0% YTD, but because it represents almost 25% of all public spending, it’s has a bigger net impact of +1.0% on moving the trend up than any other single public market. Public commercial spending is up 36.6% YTD but has only a 1% market share of public work. Highway and street is up 2.6% YTD. At 30% of total public that results in a net move of +0.8%. Office, public safety, power, sewage/waste disposal and water supply are all down YTD by a combined -5.3%. At a combined market share of 21% that nets a -1.1% reduction in YTD public spending.
Private spending is dominated by a 52% market share of residential work. At 6.6% growth that nets 3.4% growth in private spending. Several of the nonresidential building markets have high YTD growth (and/or a large market share of private work); lodging +30%, office +27%, Amusement +22%, commercial +10% and power +8%. These five markets combined represent 29% of private spending and combined are up +15% YTD for a net impact of +4.4% to private work.
For a base of reference, here’s a few points in spending history.
Total Construction Spending
- 8 years 1998-2005 up 77%
- 3 years 2003-2005 up 32%
- 3 years 2008-2010 down 30%
- 4 years 2012-2015 up 41%
Residential
- 8 years 1998-2005 up 133%
- 3 years 2003-2005 up 57%
- 3 years 2007-2009 down 60%
- 3 years 2013-2015 up 60%
Nonresidential Buildings
- 5 years 2004-2008 up 64%
- 3 years 2006-2008 up 45%
- 3 years 2009-2011 down 36%
- 2 years 2014-2015 up 25%
Non-building Infrastructure
- 7 years 1995-2001 up 56%
- 4 years 2005-2008 up 60%
- 3 years 2009-2011 down 8%
- 3 years 2012-2014 up 19%
See this post for expanded details on Construction Spending – Nonresidential Markets – Buildings and Infrastructure
See this post for expanded details on Construction Inflation
June 2016 Year-To-Date Construction Spending
update 8-6-16 See this link to July Jobs Report
Construction spending for June reported by U.S. Census totaled $1.134 trillion, the lowest since $1.126 trillion in December 2015. Spending hit the lowest for 2016 after reaching a 9 1/2 year high of $1.176 trillion in March.
Spending for June is down 0.6% month/month from a revised May. May and April were both revised down. Construction spending year-to-date is now only +6.2% vs. the same six months 2015. It was above +8% year-to-date for the last three months.
Construction spending reached a 9 1/2 year high in March. The biggest declines in spending since March are Residential -5%, Healthcare -4%, Educational -6%, Highway & Street -6%, Sewage & Waste Disposal -12% and Manufacturing -8%. The only significant increases since March are Lodging +3.4%, Power +2.5% and Conservation +6%. Power is the only big $ volume sector.
The Census spending numbers for both May and June seem somewhat suspect as they fall well outside the statistical mean for expected percentage of total annual spending within those months. June reported residential spending is 6% below statistical mean for June, larger than any variance in 15 years, therefore it becomes suspect. Granted this is based on only six months of actual spending with six months still to go. However the residential variance is so significant, following that trend would reduce residential spending for the remainder of the year by $30 billion, or more than 10% of the final six months. This is an unlikely scenario, unless it were to signify the beginning of a steep downturn starting in March and continuing for the remainder of 2016. Construction starts dollar volume does not support that scenario. Therefore, I have not adjusted down my predicted spending for the remainder of the year based on the downtrend for April, May and June as-reported actual spending. Although it is an uncomfortable position to take, I expect to see some upward revisions in the coming months.
Spending is dependent on long duration cash flows from all previous construction starts. Construction Starts as reported by Dodge Data & Analytics provide a base to predict spending. Dodge reports starts in dollars. Starts gives a long term trend view of spending.
Previously I said we should expect a short duration downturn in spending occurring from January through March. The monthly unevenness in the dollar volume of new starts over the last two years indicated a slowdown in spending during the first quarter 2016. As it turns out, first quarter spending was much stronger than expected, averaging $1,175 billion which is a 9 1/2 year high. Spending has been declining since the March peak, averaging only $1,140 for Q2, down 3% from Q1, but still near a nine year high.
It will take several more months to see if spending rebounds and to see if that helps identify this April-May-June downturn as the dip I expected in Q1, but just had targeted it off by several months for when the dip would occur.
If May or June get revised up and/or the 2nd half rebounds to confirm the slight dip, spending will come right back to the long term trend.
Total first half spending is only 1% below what I predicted. If a 2nd half spending rebound materializes, we should still finish 2016 near $1.200 trillion in total spending, up 8% from 2015.
This article by Luke Kawa @LJKawa on BloombergMarkets @markets which quotes me also includes comments from Bespoke’s @GeorgePearkes on the disparity between the trend in spending and Census residential # of units under construction. The graphic comparison shows spending vs # units diverging for May-June, units advancing and spending declining. This is another clue this may get revised in future data.
Something Is Odd About the Latest U.S. Construction Data
7-6-17 The most recent release of Census Construction Spending data issued July 3, 2017, revises data back to January 2015. The May and June 2016 data discussed in the Aug. 2, 2016 article linked above were both revised up 3%. This upward revision to the data puts it right in line with growth expected back in August 2016, confirming our questioning the data as suspect at that time.
Have We Reached Peak Construction Spending?
Some analysts tracking construction spending make note of how close we are to previous highs. Are we really that close? Let’s have a look.
Back in early 2006 residential spending peaked and nonresidential buildings had yet to reach its peak, 25% higher in 2008. Non-building Infrastructure also peaked in 2008 and stayed near that peak through 2009. In the 1st quarter of 2006 total spending peaked at a annual rate of $1.2 billion. We are within a stone’s throw of reaching that level and probably will within the next few months. But all of that is measured in current dollars, dollars at the value there were worth within that year, ignoring inflation. Adjusting for inflation gives us a much different value, constant dollars or dollars all compared or measured in value in terms of the year to which we choose to compare. To be fair, we must now compare all backdated years of construction to constant dollars in 2016. What would those previous years be worth if they were valued in 2016 dollars? Residential construction added 20% inflation in just the previous 3 years and nonresidential buildings 13%.
Inflation in construction acts differently than consumer inflation. When there is more work available, inflation increases. When work is declining, inflation declines. When nonresidential construction was booming from 2004 through 2008, inflation averaged almost 8%/year. When residential construction boomed from 2003 to 2005, inflation in that sector was 10%/year. But from 2009 through 2012 we experienced deflation, the worst year being 2009. Residential construction experienced deflation from 2007 through 2011.
This graphic uses inflation relative to each sector to adjust construction spending into 2016 dollars. Now we can see how far we really dropped, how far off the bottom we have come and how far we have to go to get back to peak spending. That previous peak of $1.2 trillion in early 2006 would be worth $1.4 trillion today.
In the past 4 years we have had inflation adjusted spending annual increases ranging from 3% to 7%. Fair enough to say we are averaging about a 5% per year increase in inflation adjusted spending. That can also be referred to as volume. At that rate, still down 18% from the previous peak, we may not see a return to previous peak levels of construction spending for at least 3 or 4 more years.
Construction Spending April Data
6-1-2016
Total Construction Spending year-to-date is up 8.7% over Jan-Apr 2015. Spending declined in April 1.8% below March. Every major sector declined from a March value that was revised upward by +1.6% to the highest monthly spending since 2007.
Often the month to month change does not reflect the long term trend. For example, for February and March combined spending was up 3%, a trend if carried out for the full year would indicate annual growth of 18%, a level never achieved. So a decline in April is not too unusual. Including April, three of the last five months were up. The 3 month avg is up 1.8% from the previous 3 months, at its highest since mid 2007 when spending was still near the 2006 peak.
Residential spending for April is down 1.5% by Census SAAR, but that is after a strong March. Year-to-date Jan-Apr compared to 2015 is up 9.1%. The current 3 month average is at its highest since the 2nd half of 2007 and is up 3.5% over the previous 3 months.
Total Nonresidential spending for April is down 2.1% from March by Census SAAR, but that is after a March that came in just 2% below peak pre-recession spending measured in the 1st quarter of 2008. Year-to-date Jan-Apr compared to 2015 is up 8.5%. The current 3 month average is at its highest since the Q1 2009, which was still near the pre-recession peak, and is up 2.8% over the previous 3 months.
Nonresidential Buildings spending year-to-date is up 9.8% over 2015. The current 3 month average is at its highest since Mar-Apr-May 2009 and is up 3.5% over the previous 3 months. Spending on Nonres Bldgs peaked in 2008 and remained near that peak until March 2009. We are on track to regain peak spending by Q3 this year.
- Commercial and Office construction spending are both 5% ahead of year-to-date predicted. If both finish the remaining months of 2016 as predicted, then expect 2016 growth of +9% and +16%.
- Lodging construction spending 5% ahead of year-to-date predicted. If finishes as predicted, expect 2016 +25%.
- Manufacturing construction spending 5% below year-to-date predicted. If finishes as predicted, expect 2016 only +3%.
- Power construction spending 10% above year-to-date predicted. If finishes as predicted, expect 2016 down only -3%.
Nonbuilding Infrastructure spending year-to-date is up 6.5% over 2015. The current 3 month average is up only 1.4% over the previous 3 months. However, spending on nonbuilding infrastructure has been tracking near all-time highs for most of 2014 and 2015. It peaked in early 2014 and again in mid 2015. We may exceed both those peaks in the next 4 months.
Construction Starts lead spending. Starts data is from Dodge Data & Analytics. Early 2015 had elevated levels of new starts in every sector. Although the level of starts has declined since then, the long term trend is still up, so that means the rate of increase in spending may slow, but not decline. I see no indication at this time to expect a decline in long term spending. I previously predicted spending would temporarily slow or drop in early 2016 and I think we have seen that. At this time, I still expect total spending in 2016 to exceed 10% growth. Strong data needed to verify 2016 total spending prediction will be available when we get June spending (August 1 release). At that time we will have a much better indication of what to expect for all of 2016.
1st Quarter 2016 Construction Spending and Forecast
5-2-16 March construction spending was released today. Spending is UP 9.1% year-to-date vs 2015 http://www.census.gov/construction/c30/pdf/release.pdf
Year-to-date gains are led by nonresidential buildings up 11.3%, followed by non-building infrastructure up 8.6% and residential up 7.5%.
This plot, Construction Spending By Sector, shows actual spending (SAAR) through March 2016 and projected spending to April 2017.
The biggest percentage growth year-to-date gain is multifamily housing ,up +31%, although Residential combined is up only 7.5%. Other growth, Lodging +30%, Office +22% and Highway +21%.
- Residential year-to-date spending:
- $ volume changes; SF +11.2%, MF +31%, Reno -7.3%.
- Market share; SF 55%, MF 16%, Reno 29%.
The biggest $ volume gain through March is Residential +$6.4b, which includes a decline in renovation work. Single Family is up +$5.0b and Multifamily is up +$3.4B. Office +$2.6b, Highway +$2.5b and Educational +$2.1b. Although lodging is up 30%, its market share is small and its $ volume is up only $1.3b.
Residential spending has completely recovered from a 4% decline in January. Projected growth of 20% from now through the 4th quarter will help residential spending reach a total 15% growth for 2016.
Nonresidential buildings spending climbed 4% in the last two months from the stalled range that remained nearly flat from May 2015 through January 2016. Growth may peak this year in the 3rd quarter before dropping into year end, but may still reach a total 12% growth for 2016.
Infrastructure spending has meandered along the $300 billion mark since last May and is expected to stay there through 2016. Expect only slight growth of 4% in infrastructure spending in 2016, contributed mostly by Highway and Street.
All sectors may experience a decline in spending before year end, but all are expected to return to growth leading into 2017.
Total construction spending in 2016 should reach $1.220 trillion, up 11% from 2015. 2014 through 2016 will be the strongest 3-year growth on record in both percentage gain (+34%) and $ volume gain (+$314 billion). Only 2003-04-05 comes close.
Later, a comparison of inflation adjusted (constant) dollars. The results will be different. I’m estimating particularly high rates of inflation, so inflation reduces the gain in real constant volume from the spending projections by a lot in 2016.
Construction Expectations 2016
4-6-16
What should we expect in 2016 for construction spending, jobs and cost?
Nonresidential buildings starts (as reported by Dodge Data & Analytics) were well above average from March 2014 through May 2015 but since then have been below average. It takes about 24 to 30 months for nonresidential building starts to reach completion. The effect of below average starts will kick in at the end of this year after strong spending growth.
Non-building infrastructure starts jumped 50% above average from November 2014 to peak in February 2015, then settled back to average in July of 2015. Those very strong starts in early 2015 will be spread out over 4 to 6 years so will not cause spending to spike. They will help support a slow steady increase in spending over the next two years.
Residential starts averaged near 20%/yr growth for 3 years but dropped below average for the entire 2nd half of 2015. That late 2015 dip in starts may not slow residential spending too much until the end of 2016. Overall, the data shows another repeat year of growth similar to the last three years.
2015 Construction spending finished the year up 10.6% over 2014. After 3 years of growth averaging 9%/year, 2016 total construction spending could climb 11% above 2015, the largest percent gain in over 10 years. Any construction spending slowdown is temporary, baked in from old uneven starts causing uneven cashflow, soon to be ending. By the 2nd quarter 2017 all sectors return to positive growth for strong spending in 2017.
Nonresidential buildings construction spending went from zero growth in 2013 to 9% in 2014 and took off to hit 17% growth in 2015. Nonres bldgs spending could reach 12% growth in 2016 and 7% in 2017.
Infrastructure spending will increase a little in 2016 but we won’t see a sizable increase of 8% until 2017.
Residential spending averaged over 15%/year for the last 3 years and could go over 15% growth in 2016, combining for the best four years of spending growth since 2002-2005.
Don’t be mislead by news that construction spending is close to reaching the previous highs. That may be true of spending, but spending is not the measure of expansion in the construction industry. The measure of expansion is volume, spending minus inflation.
Construction spending is up nearly 40% off the 2011 lows and within 5% of the 2006 highs. But after adjusting for inflation, volume is up only 22% from the 2011 lows and is still 17% below 2005 peak volume. We still have a long way to go. While spending is predicted to reach over 11% growth in 2016 and may do the same in 2017, volume will increase only 5% to 6% each year. The rest is due to inflation.
March 2016 construction jobs increase 37,000 from February and although up and down, have averaged 37,000 jobs per month for the last 6 months. That is the highest 6 month average growth rate in 10 years. That certainly doesn’t make it seem like there is a labor shortage. However, it is important to note, the jobs opening rate (JOLTS) is the highest it’s been in many years and that is a signal of difficulty in filling open positions.
To support the expected 2016 volume growth we need an average 25,000 new jobs per month in 2016, 300,000 new jobs, reaching a three-year gain of nearly 1 million jobs for the period 2014-2016, the highest three-year total jobs growth since 1997-1999. The labor force hasn’t expanded this fast in over 16 years. That can have some undesirable consequences. Rapid jobs growth may result in accelerating wages and lost productivity, compounding the cost to labor.
4-6-16
If we get a construction jobs slowdown in the next few months, it’s not all due to labor shortages and not being able to find people. Construction volume has been growing faster than jobs for more than a year. It means productivity in 2015 is up after several down years. But, while we’ve recorded consecutive years of productivity declines many times, we have not had two consecutive years of productivity gains in the last 22 years. So historically we should expect a decline, not gains this year.
Material input costs to construction are down over the last year, but that accounts for only a portion of the final cost of constructed buildings. The cost of new residential construction is up 5% to 6% in the last year. Several nonresidential building cost indexes are indicating construction inflation between 4% and 5%. The Turner non-residential bldg cost index for 2015 is 4.6%. The 1st qtr 2016 is up 1.15% from the 4th quarter 2015. The Rider Levitt Bucknall nonresidential building 2015 cost index is 4.8% and the Beck Cost Report has 5.0% for 2015. I recommend an average 5.5% cost inflation in 2016 for residential and nonresidential buildings. Non-building infrastructure costs are unique to each individual infrastructure market, so average building cost indices should not be used for infrastructure.
Construction Analytics 