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Construction Data Briefs APR 2023
Construction is booming. Nonresidential buildings is leading growth. For the first two months of the year, total construction spending year-to-date (ytd) is up 5.9%, but nonresidential buildings spending is up 23% ytd, the fastest rate of nonres bldgs growth in over 20 years. Nonresidential buildings annual rate of spending has increased 19% in the last six months. Nonbuilding spending ytd is up 8%. Nonbuilding annual rate of spending increased 10% in the last four months. Residential spending peaked in March 2022. Since then the annual rate of residential spending has dropped 11%.
Total Construction Spending in 2023 is now forecast to reach $1,894 billion, an increase of 5.3% over 2022.
Nonresidential Buildings spending in 2023 is now forecast at $629 billion, an increase of 20.3% over 2022.
STARTS
The rate of construction spending in 2023 will be influenced predominantly by a 40% increase in new nonresidential building starts in 2022. In recent years, new nonres bldgs starts averaged $300 billion/year. In the 2nd half of 2022, starts averaged over $500 billion/year. Many of those projects will have peak spending in 2023. Some will occur in 2024.
Residential construction (Dodge) starts posted the five highest months ever all in the 1st 6 months of 2022. In the second half of 2022, residential starts fell 15%. In Jan and Feb 2023, starts dropped another 20% below 2nd half 2022. Starts are now down 25% in 12 months.
Nonresidential Bldgs starts in 2022 posted the largest ever one-year increase in new nonresidential buildings construction starts, up 40%. Starts were also up 15% in 2021. Nonres Bldgs new starts in the 2nd half 2022, averaged 67% higher than any other 6mo period in history.
Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150%. Office is up 36% (datacenters), Healthcare up 17%, Comm/Rtl up 23% (warehouses).
Non-building starts increased more than 100% in July 2022. The 2nd half 2022 was up 50% over 1st half 2022. Starts for 2023 are forecast up 15%. For 2022, Highway up 25%, Transportation up 45%, Power up 30% and Public Works up 15%.
SPENDING FORECAST
Construction Spending through February 2023 is up 5.9% ytd. Spending is forecast to finish 2023 up 5.3%.
While residential falls back nearly 7% in 2023, Nonresidential buildings is leading with a forecast of 20% spending growth.
Total construction spending for 2023 is on track to increase +5.3%. Residential -6.7%, Nonres Bldgs +20.3%, Nonbldg +13.5%.
SPENDING BY SECTOR CURRENT $ AND INFLATION ADJUSTED CONSTANT $
In 2023, it’s Nonresidential Buildings leading growth. In 2024, it will be Nonbuilding Infrastructure leading spending growth. Both are expected to grow greater than the inflation index.
See also Construction Spending Outlook – Feb 2023
Current $ Spending, Inflation and Volume SEE Construction Inflation 2023
Inflation adjusted volume is spending minus inflation, or to be more accurate, spending divided by (1+inflation). The following table shows spending, inflation and volume (spending without inflation) for each year. All $ are current to the year stated. This table shows that inflation adds nothing to volume growth. All values in this table are current to the year stated. The values in this table are not indexed to a constant value year. This is an attempt to show that business volume in any given year is not as high as spending would indicate. When inflation is positive, volume is always less than spending by the amount attributed to inflation.
Spending during the year is the value of business volume plus the inflation on that volume. When inflation is 12%, volume plus 12% = total spending. Revenue is generally measured by spending put-in-place during the year. In 2022, Nonresidential buildings business volume was 12.2% less than spending, or less than revenue. Residential volume was 15.7% less then spending.
SPENDING TOTAL CURRENT $ AND INFLATION ADJUSTED CONSTANT $
Overall Construction Spending is up 22% in the 36 months since the onset of the pandemic, but, during that same period inflation increased 31%. After adjusting for 31% inflation, constant $ volume is down 7%. So, while the plot on the left shows three years of increases in spending, the actual change in business volume is still down and has not yet returned to the pre-pandemic peak in Feb-Mar 2020.
NONRESIDENTIAL SPENDING (CURRENT $) AND VOLUME (CONSTANT $)
Nonresidential Buildings spending in 2023 is forecast at $629 billion, an increase of 20.3%, or $100 billion and add another $50 billion in 2024.
In 2022 we realized the largest ever one-year increase in new nonresidential buildings construction starts, up 40%. Starts were also up 15% in 2021.
The AIA Consensus Construction Forecast, December 2022 predicts only a 5.8% increase in spending for nonresidential buildings in 2023. My beginning of year forecast for comparison was 15.8%. My current forecast is +20.3%.
We began the year with record new starts indicating an increasing spending rate. The monthly rate of spending is up 12 of the last 14 months, has increased for 6 consecutive months and is up 20% in the last 6 months. The rate of spending is predicted to increase 10 out of 12 months in 2023, a total increase of 11% over the year. Barring any unforeseen negative occurrence, the trajectory in the rate of spending is increasing.
Year-to-date nonresidential buildings spending for Jan+Feb is up 23%. This is driven by Manufacturing, up 53% ytd, but also supported by Lodging up 38% ytd and Commercial/Retail up 23% ytd. Every nonresidential building market except Educational (up only 8%) is up greater than 10% ytd.
Nonresidential buildings spending fell 17% from March 2020 to Sept 2021, then increased 36% from Sept 2021 to Feb 2023. Currently, as of Feb 2023, spending is 14% higher than the pre-pandemic peak in Feb 2020. But nonresidential buildings inflation over that same 36 months increased 26%. Business volume in constant $ actually fell 25% from Feb 2020 to Sept 2021, and hit a secondary low in mid-2022. Since then, the actual change in business volume has increased 18%, but that still leaves volume nearly 10% lower than the pre-pandemic high.
Non-building Infrastructure spending for 2023-24 is forecast up 25%, up $50 billion/year for two years. Non-building Infrastructure will post the 1st year of sizable gains since 2019, forecast at $415bil, up 13.5% in 2023. In 2022, Highway and Public Utilities posted strong gains of 9.1% and 16.6%, but those gains were offset by a 8.7% decline in Power. For 2023, Highway and Transportation recorded the strongest starts in five years. All markets post spending gains in 2023, with Highway up 26%, Transportation up 9% and Public Utilities up 8%.
Non-building Infrastructure spending is up 4% in 36 months since Feb 2020. After adjusting for 26% inflation, constant business volume is down 17%.
RESIDENTIAL SPENDING SF-MF-RENO CURRENT $ AND CONSTANT $
Residential starts are forecast down or flat in 2022 and 2023. Spending grew 44% in the last 2yrs, but inflation was 30% of that 44%. With no growth in starts forecast for 22-23, spending will struggle to keep up with inflation. Residential spending is forecast to fall 7% in 2023. Most of the decline is single family. Single family is down a total of 23% over 10 consecutive months. Multifamily is up 22% over 13 consecutive months. Renovations gained 25% in 2022 but spending varies +/- 10% throughout the year. Midyear there is potential for 6 consecutive down months in residential spending.
DOES VOLUME OF WORK SUPPORT JOBS GROWTH? or, Can jobs growth support volume of work?
Jobs should track volume, not spending growth. Volume = spending minus inflation. Volume is down, although now increasing, while jobs are up. Nonres Bldgs volume, in constant $, fell 25% from Feb 2020 to Sept 2021, and hit a secondary low in mid-2022. Since then, the actual change in nonres bldgs volume has increased 18%. Yet nonres bldgs jobs increased only 3.5%. That still leaves volume nearly 10% lower than the pre-pandemic high. If the same production levels ($ put-in-place per worker) as 2019 were to be regained, theoretically, nonresidential volume would need to increase 10% with no increase in nonresidential jobs. For now, productivity is well below that of 2019.
Nonresidential Buildings spending in 2023 is forecast at $629 billion, an increase of 20.3%, or $100 billion and another $50 billion in 2024. Non-building Infrastructure spending for 2023-24 is forecast up 25%, up $50 billion/year each year.
This growth amounts to an increase of $150 billion in 2023 and $100 billion in 2024. It takes 5000 jobs to put-in-place $1 billion. So $100 billion in 2024 would need 500,000 new jobs. 2023 would need 750,000 new jobs.
If we were to grow the labor force to meet the newly identified workload added from new starts, we would need to double the prior maximum rate of construction jobs growth. Normal growth is about 250,000 jobs per year and maximum prior growth is about 400,000. The workload discussed above would require 750,000 + 500,000 new jobs back to back. That’s an expansion of the industry by 15%, in an industry that normally grows 3%/yr. This industry can’t grow that fast. (Which means I need to account for over-capacity growth as a potential reduction in future forecast. You can’t increase spending that fast if you can’t expand the industry that fast).
4-16-23 update- Everything forecast above is predicated on the normal cash flow of forecast new starts. As of yet, this forecast has not been reduced to reflect the inability of the industry to expand jobs fast enough to absorb the volume of spending generated from forecast starts. Whether new starts get canceled or delayed, spending needs to be reduced annually for at least the next two years simply because jobs cannot increase fast enough to put-in-place the forecast spending. This impediment needs to be accounted for and could reduce overall construction spending forecast by approximately $40-$60 billion in 2023 and $25-$40 billion in 2024. The most likely markets where a reduction would occur are Manufacturing, Highway, Commercial/Retail and Office.
SEE more discussion on Volume and Jobs
here 2023 Construction Volume Growth
and here Infrastructure Construction Expansion – Not So Fast
Construction Briefs Nov’22
Construction is Booming. Well, OK, construction is setting up to be booming in 2023-2024. New construction starts for Sept are down 19% from August and yet starts are still near the highest levels ever. Sept is 4th highest total starts ever, all four of the highest ever months of new starts are in 2022. July and Aug were the two highest months of new starts ever. Total growth in starts over 2021-2022 > Nonres Bldgs +50%, Nonbldg Infra +40%, Residential (all in ’21) +22%.
STARTS
Construction Spending will not be participating in a 2023 recession. Except, residential might. Residential starts in 2021 were up +21% to a really high new high. But starts are forecast flat in 2022 and 2023. Spending grew 44% in the last 2yrs, but inflation was 30% of that 44%. With zero growth in starts forecast for 22-23, spending struggles to keep up with inflation. Residential will post only an increase of 3% in 2023 spending, but midyear there is potential for 6 consecutive down months.
See also Construction Year-End Spending Forecast Dec’22
SPENDING BY SECTOR CURRENT $ AND INFLATION ADJUSTED CONSTANT $
Nonresidential Buildings new starts last 2yrs (2021-2022) are up 50%. Spending next 2yrs (23-24) is forecast up 21%.
Nonbldg starts 2022-23 are forecast up 38%. Spending 2023-24 forecast up 20%.
In 2023, it’s Nonresidential Buildings leading growth. In 2024, it will be Nonbuilding Infrastructure leading spending growth. Both are expected to grow more than the inflation index, so there will be real volume growth to report.
Residential construction (Dodge) starts since Jan 2021 have posted 17 out of 21 months of the highest residential starts ever posted. The 5 highest months ever are all in 2022.
Nonresidential Bldgs starts in Sept dropped 23% from August and yet still that was the 3rd highest month ever. July and August were 2nd and 1st.
Construction starts for Nonresidential Bldgs posted each of the last 4 (consecutive) months thru October higher than any months ever before. The avg of last 4 (consecutive) months is 33% higher than the avg of the best previous 4 mo ever (even non-consecutive). Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150% year-to-date.
Construction Spending Sept total up 0.2% from Aug. Aug & Jul were revised up 1.1% & 1.3%. Total spending YTD thru Sept’22 is up 11.4% from Sept’21. MAJOR movers; Mnfg up 16% since Jun. Jul & Aug were revised up 7.4% & 8.4%. Highway is up 9% since June. Jul & Aug were revised up by 4.0% & 4.4%.
SPENDING FORECAST
Total construction spending for 2022 is on track to increase +11.1%. Residential +16.8%, Nonres Bldgs +9.5%, Nonbldg +0.5%.
Comm/Rtl +18% Mnfg +32% Power -8% Pub Utilities +14%.
Current and predicted Inflation SEE Construction Inflation at Year-End 2022
Inflation adjusted volume is spending minus inflation.
Total volume for 2022 falls 1%. Rsdn +3%, Nonres Bldgs -1%, Nonbldg -9%.
Total volume for 2023 is up 1%. Rsdn -3%, Nonres Bldgs +8%, Nonbldg +2%.
SPENDING TOTAL ALL $ CURRENT $ AND INFLATION ADJUSTED CONSTANT $
Overall Construction Spending is up 15% since the onset of the pandemic, but, after adjusting for 25% inflation, volume is down 10%. Residential jobs are near even on track with volume, but Nonres and Nonbldg have volume deficits of approx 20-25% vs jobs.
- Feb 2020 to Aug 2022
- Resdn spend +42%, vol +6.5%, jobs +7%
- Nonres Bldgs spend -8%, vol -24%, jobs -3%
- NonBldg spend -7.5%, vol -24%, jobs +1%
JOBS VS CONSTRUCTION VOLUME VS SPENDING (VOL = SPENDING MINUS INFLATION
Labor Shortage? Jobs should track volume, not spending growth. Vol = spending minus inflation. Volume is down while jobs are up. If the same production levels ($ put-in-place per worker) as 2019 were to be regained, theoretically, nonresidential volume would need to increase 20% with no increase in nonresidential jobs. I don’t expect that to occur, therefore, productivity will remain well below that of 2019.
LABOR PRODUCTIVITY
Over the next year or two, there could be several billion$ of construction spending to repair hurricane damaged homes in Florida. That spending will NOT be reported in Census spending reports. Renovations to repair natural disaster damage are not recorded in construction spending. Construction spending to replace homes entirely lost to damage IS reported in Census spending, but is reported as renovations/repair, not new SF or MF construction.
RESIDENTIAL SPENDING SF-MF-RENO CURRENT $ AND CONSTANT $
Construction Starts Thru Aug’22
Total construction starts for August did indeed fall (9%) as predicted from the lofty highs recorded in July. This is not alarming as you will see why.
Nonres Bldgs construction starts in July, $ as reported by Dodge, increased 75%+ from the previous month and 65%+ from the previous 3mo and 6mo avgs. That is a once in a decade increase. In 2018, starts posted an increase of 60%. The July and August 2022 starts is the only time starts exceeded that of 2018.
Historically, then starts would fall back to the 3mo or 6mo (normal) avg rate within the next two months. Never have starts increased the month after or even within the next several months after reaching such a high level. Until now. After posting a 75% increase in July, Nonres Bldgs starts for August increased 7%.
The total dollar value of Nonres Bldgs starts in July and August exceeded the total for all Nonres Bldgs starts in Jan+Feb+Mar+Apr.
Even assuming the next 4 months starts fall back to less than the avg rate before the extreme highs in July and August, Nonres Bldgs starts are on track to increase 20%+ for the year, an annual rate of growth achieved only once before, in 2014. With that assumption, for the next 4 months starts will fall 45% from the current high and still be enough to post the highest year ever. Don’t be alarmed if over the next 4 months Nonres Bldgs starts decline from the lofty highs in July and August. Those monthly highs seem unsustainable.
Non-bldg starts are on track to increase +14% total for 2022. Year-to-date non-bldg starts are up 21% with the largest increase in Utility/Gas plants. The entire decline in total starts for August was in non-bldg, but the August level, down 36% from July, is still the 2nd highest since Nov 2019 and in fact the 3rd highest ever.
What’s causing these huge gains? Along with moderate strength across many markets, mega-project starts in last 2 months. $25bil in 3 manufacturing plants, $15bil in 2 LNG projects (these are non-bldg) and $10bil for an airport terminal. Most of the spending from these projects, expected at the midpoint of construction, will occur after 2023.
Residential starts are on track to gain +2% in 2022. A 2% gain may not seem like much but is on top of a 23% gain in 2021 starts. The 1st six months of residential starts in 2022 is at an all-time high. Residential construction starts for JJA 3mo avg is down 10% from the peak in the previous 3mo. But that peak qtr, MAM, is up 5% from the total in 2021, which was up 22% from 2020. Residential starts fell a total of 14% over 3 consecutive months from the peak in Apr to Jul. Starts in August are up 1% from Jul. Avg starts for the last 20 months, in current $, are above the former high in 2005. But inflation adjusted constant$ would put recent starts 60% lower than the former 2005 highs.
Nonresidential Bldgs Forecast 2022 Improves
11-8-21
Lots of construction data came out last week. Sept spending, Oct jobs and Dodge Outlook 2022 for new starts. There have been major revisions to new starts since the June and July starts reports. Since June data, starts increased over what had been forecast for 2021 in Residential +12%, Comm/Rtl +20%, Mnfg +41%, Educ +4%, Rec +38%, Enviro+6%. These increases to 2021 starts improve the spending forecast for 2022. Mnfg, Rec and Enviro starts for 2022 were all reduced slightly.
See Construction Economics in Pictures 11-5-21 for current forecast.
Nonresidential buildings starts increased in 2021 by more than the marked up equivalent of $40 billion in spending (over the life of the projects). About half of that increase in spending would occur in 2022. So this increase in the starts forecast really pushed up the forecast for 2022 spending. All sectors now are forecast higher spending in 2022, but the biggest change is in nonres bldgs. These two plots show nonres bldgs as it was forecast based on June data on Aug. 1, and again as of Sept spending/Outlook22 starts data released Nov. 3. The expectation now is for an upward turn in spending beginning in the 4th quarter 2021. Previous models all had poor 2020/2021 starts reflecting a bottom in nonres bldgs spending just about mid-2022. The spending increase leading into 2022 moves the spending bottom to a point much sooner in 4th quarter 2021.
Nonres bldgs spending prior to release of Dodge Outlook 2022
Nonres bldgs spending forecast as of 11-3-21 includes release of Dodge Outlook 2022
Forecast spending bottom was mid-2022, now is Q4 2021. Although total spending is now forecast to increase 2.5% in 2022, that is still less than inflation, so real construction volume in nonres bldgs is still down slightly for 2022. The forecast bottom for nonres bldgs inflation adjusted constant $ is still mid-2022.
Construction Spending Update 10-1-21
Construction Spending Actual through August 2021
Total Construction Spending compared to same period 2020 is now up 7.0% year-to-date (ytd). Residential spending continues to perform better than forecast and is now up 25.8% ytd. Nonresidential Buildings is now down -8.7% and Nonbuilding Infrastructure is down -3.8%, both improved in the last two months.
The single largest impact to the change in this forecast from last month is Residential. Spending continues to perform better than cash flow predicted from starts would indicate. For August, I expected residential spending to drop 1% compared to July, but it increased 0.4%. Also, it increased from an upwardly revised July. In this August spending report, residential spending was revised upwards in both June and July by 1% each month. That pushes the total up for my forecast for the year.
Highway also posted large upward revisions, +3% to June and +2% to July, but these revisions combined represent only $515 million. The Residential revisions alone total $2.2 billion, more than double the revisions to all other markets combined, including Highway.
Year-to-date through August, while residential is up 25.8%, all but one single nonresidential market is down. 15 of 16 nonresidential markets are down -8.7% for nonresidential buildings and -3.8% for nonbuilding infrastructure. Only Sewage/Waste Water is up 3.6% ytd., but that’s only 2% of all nonresidential construction. It’s half of the $ in the table item Sewer / Water / Conservation.
By year end I expect residential spending to finish up 20%, nonresidential buildings to finish down 7% and nonbuilding to finish down 3%.
Construction starts are slowly leading the way to recovery, with remarkable strength in residential, but construction spending, which is dependent mostly on starts from previous years (nonres bldgs starts in 2020 down -20%), will remain depressed for nonresidential construction well into 2022. New nonresidential starts could double from the current rate of growth and it still wouldn’t be enough to turn 2021 nonresidential spending positive.
Residential starts gained only +3% in 2019, increased +6% in 2020 and are forecast up +9% in 2021 and +7% in 2022. Residential spending surprisingly increased +15% in 2020 to $638 billion and is forecast up +20% to $767 billion in 2021, but only +4% in 2022. Both residential starts and spending are at all-time highs. That is driving total spending to new highs.
Nonresidential Bldgs starts fell -4% in 2019, -21% in 2020 and are now forecast up +8% in both 2021 and 2022. New starts for 2021 are still -20% below the peak in 2018. Most of the fall off in starts in 2020 would have produced peak spending in 2021. Nonresidential Bldgs spending fell only -2% in 2020 but is expected to fall -7% in 2021 and -2% in 2022.
Comparing combined 2020 and 2021 starts, the only markets to show positive growth over 2019 are Commercial/Retail, +5% (due to warehouses) and Healthcare, +7% (due to hospitals). The average growth in starts of all other nonresidential buildings markets for 2020 x 2021 combined is still 35% lower than 2019. Public Bldgs increased in 2020 but fell back in 2021.
My forecast, ever since August 2020, has been showing a decline in nonresidential buildings spending on a long downward trend through 2021 and into 2022. That forecast was then and still is now correct. The nonresidential building spending plot below shows that spending has declined in 16 of the last 18 months. Spending hits a bottom in 2022.
Nonbuilding starts were up 3% in 2019, fell -15% in 2020 and forecast indicates +6% growth in both 2021 and 2022. Nonbuilding starts are 10% lower than 2019. Nonbuilding spending gained only +1% in 2020, but the forecast is down -3% for 2021 and is expected to drop -5% in 2022. Like nonresidential buildings, the large drop in 2020 starts would have had peak spending well out at the midpoints of those projects, many of which would have been in 2021 or 2022.
For more on construction starts SEE New Construction Starts as of Aug’21
Behind the Headlines
An anomaly in the data is the Manufacturing spending data versus expectations. In 2020, Dodge posted a 57% drop in new starts for Manufacturing. Since many of these type projects have long time spans to completion and peak spending is near the midpoint of a project schedule, most of the drop in spending from that huge loss of new starts would normally occur in years following the starts. I predicted the drop would occur in 2021 and 2022, expecting it would produce a 20% decline in spending in 2021. But year-to-date Manufacturing spending is down only 1%. It did produce an 11% decline in 2020 spending, but that is not the extent of the total loss. This puts into question either my forecast of when the drop would occur or percent decline in starts reported. You can’t have a drop of 57% in starts activity and get only a 1% decline in spending the following year. Based on spending in 2020 and 2021 ytd, my forecast model is indicating there may be a variance in 2020 starts data % of market captured.
Part of the difficulty with the manufacturing data arises from the fact that history shows only approximately $20bil/yr to $30bil/yr is captured in the new starts data reported and yet spending has been in the range of $70bil/yr to $80bil/yr. That means only about 25% to 35% of the total market activity is being captured in the starts data. But from this we need to predict 100% of the future spending. This % of total market captured in the starts data fluctuates up and down. So the difficulty is predicting actually how much of the market is captured, and that varies. The question is this: How much of the change in the starts data reflects an expected change in future market activity versus how much of the change in starts reported represents an unidentified variance in % of market captured. A variance in % of market captured in the data may not indicate a change in future market activity (spending). Since project schedules can be anywhere from less than 20 months to more than 4 years, any given year of actual spending could have some portion of that spending generated by project starts from the previous 4 or more years. It takes several years of actual spending to identify the differences in these two parts of the question. Only future data will help resolve this question.
Another set of data to question is residential starts. Currently, for 8 months through August, starts are up 18% over 2020. Starts began to climb in July 2020 and posted a very strong final 5 months of 2020. This year average starts to date is at all-time highs. But Dodge, in the 3Q21 Outlook, forecast 2021 residential starts up about 9%. In order for that to happen, for the remaining 4 months residential starts would need to drop 20% from the current average rate, 10% below the most recent month. That seems a bit unrealistic. That would set the monthly rate back to a point lower than anything experienced since the pandemic lows in Apr-May-Jun last year. It seems to me residential starts will finish quite a bit higher than that. I’m carrying 15% growth for the year in my forecast.
Recovery
Recovery in both nonresidential buildings and nonbuilding backlog begins to build in a few markets in 2021. Even though starts growth in % is greater than spending growth in %, overall spending in nonresidential buildings and non-buildings in dollars, not %, is exceeding new starts. Therefore both will begin 2022 with lower backlog than 2021. Total all nonresidential 2021 starting backlog dropped -9% from 2020. Starting backlog to begin 2022 will be down another -5%. Based on forecast growth in new starts, backlog increases 4% for 2023.
Aside from residential, recovery to the levels of revenue (spending) recorded in Q1 2020 or earlier won’t show up before 2024.
The following table shows ytd through August $ and forecast for 2021/2022. Almost every nonresidential market is down ytd and down compared to the average in Q1 2020 before Pandemic Recession.
Impact of Pandemic Slowdown
The impact of reduced starts in 2020 is showing up in the 2021 year-to-date results. Total Nonresidential Buildings starts were down -20% from April 2020 through March 2021 compared to pre-pandemic high in Q1 2020. Nonres Bldgs starts improved from Apr-Jul 2021 and for those 4 months managed to equal the pre-pandemic high. However, the 2021 average year-to-date through August is still 14% lower than the pre-pandemic high. Nonbuilding Infrastructure starts returned to pre-pandemic high several months ago, but have since slowed.
Due to the large drop in new nonresidential buildings starts from Apr 2020, that continued at a level down -20% until March 2021, some markets will be affected by a downward trend in spending for two to three years.
The greatest downward impact from a -20%, year-long loss of starts in nonresidential spending will be felt throughout 2021 and into 2022.
Construction Analytics has been describing this situation and provided plots showing what would occur in nonresidential buildings spending since August 2020. A review of the historical forecasts will show those forecasts mostly correct. The plot below, Construction Spending by Sector, shows the current forecast and actual data through August 2021. The explanation and the plotted data have been similar since last year.
Over the next 9 months, every sector will post more down months (in spending) than up months, although the declines will be most noticeable in nonresidential buildings. The plot line for Nonresidential Buildings may not look like much is going on, but in a minute you will see the magnitude of that downward sloping line.
Overall performance forecast by sector has changed very little since May of this year.
While most markets recover to positive new starts growth in 2021, spending growth lags, showing the downward trend in 2021 as a result of lost starts in 2020.
This next plot changes the scale so the nonresidential buildings spending data can be visualized much easier. This is the exact same data as in the Construction Spending by Sector plot above. The scale change helps to visualize the dramatic decline in nonresidential buildings spending. From Apr through Dec 2020, nonresidential buildings spending fell at a rate of 1.75%/month. Jan 2021 and Mar 2021 are the only up months since Feb 2020. From Apr 2021 through Aug 2021, the rate of spending fell at 1.25%/month. Currently, the annual rate of spending is 17% below the pre-pandemic peak. By midyear 2022, the annual rate of spending will be -20% lower than the pre-pandemic peak. It could take two to three years after that to recover to the pre-pandemic level of spending.
A typical batch of new nonresidential construction starts within a year gets spent over a cash flow schedule similar to 20/50/30, that is, 20% of all starts in the calendar year gets spent in the year started, 50% in the next year and 30% in years following. Total nonresidential buildings starts in 2020 were down -20% ($90 bil in spending) and nonbuilding starts were down -10% ($35bil). Under normal conditions, we know how much of that $125 bil would have occurred in 2020, 2021 and 2022. That’s a loss of spending this year, and that loss remains a steeply downward slope as long as starts remain depressed. Nonresidential buildings starts, depressed for 13 months, posted starts indicating recovery beginning in April this year.
Infrastructure
Let’s assume INFRASTRUCTURE BILL new starts begin in Jan 2022, and let’s also assume $100 billion worth of work gets awarded in 2022. That’s $100 billion of starts in 2022. Only a maximum of 20% (the 1st year portion of the cash flow 20/50/30) gets spent in the 1st year. Therefore, even if $100 billion in new infrastructure starts begin in 2022, only 20% of that or only $20 billion would get spent in 2022. So, there will be very little impact on total 2022 construction spending as a result.
That changes dramatically for the second year. For 2023 we get 50% of the spending from 2021 starts and 20% from 2022 starts, so $70 billion in spending, growth of $50 billion.. That’s already more than the industry can handle.
Total Public Infrastructure and Public Institutional, the total public work pool for which infrastructure investment is a potential, represents a total LESS THAN $350 BILLION annually, less than 25% of all annual construction. Average growth is $12 billion/year. Looking back to 1993, this subset has never exceeded $35 billion in growth in a single year. If we award (start) $100 billion in new work each year for the next 5 years, we would cap out the growth rate for spending in this subset of work, with no room for any additional new starts from any other sources. The work would be completed after 8 years.
Forecasting Reliability
All the forecast spending in the data above is developed from monthly cash flow of new starts. This plot shows the history of the cash flow forecast (the light colored line) to the actual spending growth (the darker line). The cash flow forecast has been predicting the drop in nonres bldgs spending since last year. Although actual spending is somewhat more uneven, the forecast accurately predicts the direction spending is headed.
2021 Midyear Forecasts
Here’s how my (Construction Analytics) midyear spending forecast compared to various firms’ data published in the AIA Midyear Forecasts and how we all compare to the current August year-to-date spending. The year-to-date (ytd) performance provides insight into expected final 2021 performance. For example, the year-to-date Educational spending is -10.6% with 8 months of spending recorded. You can see in the table, one firm had forecast that educational will finish up 3.5% for the year. (Not shown here, but the AIA Consensus for Educ. is -2.1%). With 8 months of actual ytd data and only 4 months remaining (estimate to complete or etc), we can tell what would be needed in the remaining 4 months to get to any particular estimate.
To finish the year up +3.5%, for the next 4 months Educational spending would need to average +32% year-over-year (yoy) growth per month over last year to swing from currently down -10.6% to up +3.5% . Well, Educational spending is down 16% from the 2020 high, has been averaging down 11% yoy for the last 7 months, has fallen 7 of the last 8 months and is down mo/mo an average of 1.5%/mo for the last 6 months. With this performance over the past year, the probability is not likely at all that Educational construction spending is going to flip from a negative yoy -10.6% to an avg of +32%/mo for the remaining 4 months to finish the year up +3.5%. (To meet the AIA Consensus for Educ., the final 4 months would need to swing to +15%/mo). While there are some good estimates, there are many more examples like this in the AIA forecasts.
In 2020, more of Construction Analytics midyear forecasts by market were closer to the final actual than any other firm reporting in the AIA Midyear Outlook. Here’s the 2021 midyear forecasts compared to the current August year-to-date. Every forecast in the AIA Midyear 2021 report predicts 2022 nonresidential buildings spending will increase. See my spending forecast table above in this report where I’ve projected many nonresidential market down in 2022.
JOBS DATA has been updated with the jobs data release on 10-8-21
SEE Construction Jobs Outlook 10-11-21
New Construction Starts as of Aug’21
Construction Starts for August reported by Dodge.
Residential construction starts fell 9% in August, but that is after the previous 8 months of Residential starts were each higher than any other months ever recorded. The average of new residential starts for 2021 is 18% higher than the pre-pandemic high in Feb 2020 and 24% higher than the average for 2020..
The 4 highest months on record for residential construction starts are Mar (peak), Apr, May and Jun 2021, indicating spending should remain high at least through 2021. My current forecast has 2021 residential construction spending up 19% for the year.
Compare new construction starts for residential to new starts for nonresidential buildings. The current situation is like night and day.
Nonresidential Bldgs construction starts fell 13% in August. Compared to the pre-pandemic high (Feb 2020), May (+8%) and Jun (+1%) are the only two months higher. July was 2% lower, Aug 14% lower. The average for all 2020 finished 20% lower than the pre-pandemic high in Feb 2020. New 2021 starts avg is 9% below Feb 2020.
If monthly starts can recover to the pre-pandemic high of Feb 2020 from here on forward, then the low point of spending will be in the 3rd qtr 2021. Monthly spending still would not recover to pre-pandemic level until Jan 2023. However, we are currently not at a consistent recovery to pre-pandemic levels of new starts and the longer we remain below recovery level both dates would move out.
New starts in almost every Nonresidential Bldgs market are up for 2021, but some of that 2021 growth is off of such a low base in 2020, the combined current level is still quite low, far below the pre-pandemic highs. Compared to pre-pandemic starts, Mnfg is down -30%, Office -13%, Lodging -57%, Amuse/Rec -30%. Only Healthcare +5% and Public Bldgs +8% are up. The good news is total nonresidential buildings starts for the 4 months Apr’21 thru July’21 is now 52% higher than Apr’20 thru Jul’20.
Manufacturing was by far the worst performer in 2020, new starts in 2020 down 55%. Although Lodging gets a lot of attention because starts dropped 50% and spending reacted immediately by dropping -13% in 2020 and currently -30% for 2021, but that’s only for a total decline of $13 billion over two years. Manufacturing spending, for projects which have longer durations, fell $9 billion in 2020 and could drop another $12 billion over the next two years.
Manufacturing construction spending peaked between 2015 (all-time high of $83bil) and 2019 ($81bil). We won’t see spending like that again before 2025 unless new construction starts double and that is not in the forecast.
New manufacturing starts for 2021 are up more than 35% for 2021, but that 35% increase is from 2020’s 55% decline, an 8yr low, so 2021 is still lower than the previous 3 years. Manufacturing markets are improving, but off of an 8yr low, so it will take some time to get back to 2015-2018 values.
Warehouses is the biggest up story of all. Warehouses are included in the Commercial/Retail sector and represent now about 60% of the Comm/Rtl total $. In 2017-2019 that was only 40%-45%. Warehouse starts were up +25% in 2019, +14% in 2020 and are forecast +24% for 2021. Starts are also forecast up for 2022.
Some data on the Office sector: Starts in 2020 fell 20% from the 2019 high. Total office starts in 2021 are up 4%, but most of that is Data Centers ( up 15%). Office space starts are up less than 2%. In Q1 2021, 46% of all office starts was renovation. Office Vacancy rates reached as high as 16% to 17% in Q1 and Q2 2021, but are now back down to 12%. Pre-pandemic vacancy rate was 9%.
Included in the Office sector, Data Centers is about 15%-20% of the Office total. Starts fell 22% in 2019 and 23% in 2020. Starts are up 17% in 2021, but still 30% below the 2018 high.
Amusement/Rec spending in 2021 could finish down 15%, with new starts up only 3% to 4%, but that’s up from 2020 which was down 35%. Educational spending will be down 8% to 10% and new starts are down to flat.
Nonbuilding Infrastructure construction starts are up 1% in August. Compared to the pre-pandemic high (March 2020), August is up 2%. However, the 2020 average finished higher than the pre-pandemic level and every month since last August has been higher than March 2020. New 2021 Nonbuilding starts avg is 10% higher than March 2020.
The only non-building markets to show growth in 2020 starts were Highway/Street (+9%) and Sewer (+5%). Power posted the largest losses, down 38%. That represents a loss of $45 billion in construction that would have been spread over the next 3 to 5 years. Almost all nonbuilding markets will post gains in 2021. Non-building Infrastructure markets are usually not affected as much in a downturn because public funds are committed to these projects. Power shows most of the losses because it is 95% private work.
ABI – DMI – CBI Leading Indicators
The American Institute of Architects Architectural Billings Index
The Dodge Momentum Index
The Associated Builders and Contractors Construction Backlog Indicator
These three construction leading indicators are often referenced. Do you reference any of these indices? Do you know what the index represents?
The American Institute of Architects Architectural Billings Index, ABI, is a diffusion index, measuring work on architectural firms’ drawing boards, measured as above 50 if increasing and below 50 if decreasing. The index is comprised of survey responses from firms representing 45% institutional work, 40% commercial work and 15% residential work. The index is said to lead commercial construction spending by 11 months and institutional construction spending by 7 months. BUT, the correlation is this, the ABI is compared to “the percent change in year over year construction spending”.
https://content.aia.org/sites/default/files/2016-04/Designing-Construction-Future_3-14.pdf
Year over year percent change can provide skewed results. If last year construction spending was on a slow decline every month, and this year spending is level from month to month, that would show up as a continually increasing year over year percent growth. Because year over year spending percent is increasing, it could be misinterpreted that current year spending is growing, but it is flat. In another example, if last year construction spending was slowly increasing every month, and this year spending is slowly increasing every month at the same rate of growth, that would show up as no growth in year over year spending, but actual month to month spending is slowly increasing. Year over year spending can be influenced by last year activity as much as current activity and may not show the current trajectory in spending.
The Dodge Momentum Index, DMI, measures the earliest known indication of projects in planning. This includes only projects that are actually in design. The index is comprised of gathered results for nonresidential projects, excluding megaprojects and excluding manufacturing. The index is said to lead nonresidential construction spending by 12 months. However, it’s individual components could lead Institutional spending by 15 months and Commercial spending by 7 months. We see that the ABI refers to the point in time when the project is already under design and that leads spending by 7 to 11 months. It would be expected that the Dodge index has a longer lead time. As an indicator of early planning Dodge excludes projects that are about to go out to bid, preserving the intent of a leading indicator.
https://www.construction.com/download/Dodge_Momentum_Index_WhitePaper.pdf
The Associated Builders and Contractors Construction Backlog Indicator, CBI, attempts to measure the work in backlog, or growth in the value of work on contractor’s books. It measures the current month of total remaining value of projects in backlog divided by the previous fiscal 12 months total revenues, times 12. The resulting output is reported in months of current backlog. Of course, projects have varied schedules to completion that may take many more months if not years to complete, so contractors may not run out of work in the few months indicated by the CBI. This index also may be influenced by something that occurred a year ago that may not reflect the current activity. What this index really measures is the current backlog percentage of previous fiscal year revenues, just skip the part that multiplies that percent time 12. It provides no indication of expected annual revenues.
https://abc.org/Portals/1/CEU/ABC%20CBI%20and%20CCI%20Methodology.pdf
Construction starts, although a general indicator that construction spending may be poised to grow (or fall), can also be misinterpreted. Construction starts refers to a total project value at a point in time, the start date. For nonresidential construction, all projects that started prior to the beginning of a year will account for at least 80% of all spending within that upcoming year. Construction spending is that total project value spread out over the project scheduled duration from start to finish. Construction starts may be increasing, but rather than resulting in increased monthly spending, those starts may represent lower monthly spending but longer duration contracts. Increases in new starts does not always indicate an increase of monthly spending, but may instead represent lower monthly spending for a longer duration into the future.
All of these indices do not correlate directly to construction spending. To forecast construction spending, a cash flow schedule of all construction starts must be prepared. In any given month, spending on construction includes some monthly portion of spending from all projects that started in all previous months but that have not yet reached completion. A cash flow schedule of all monthly construction starts is the best indicator that directly forecasts construction spending.
Construction Analytics prepares estimated cash flow schedules from Dodge monthly reports of new construction starts and exclusively uses cash flow to forecast future construction spending. The cash flow schedule also allows to directly calculate the estimate to complete backlog in current $.
Know what an index represents before you put all your faith in following that index to develop your forecast.
Measuring Forecasting Methodology & Accuracy
7-1-21 Updated to 2020 actual spending revisions issued 7-1-21. Also updated initial 2021 forecasts to include May 2021 year-to-date actual spending.
1-30-21 How can we tell if the adjusted starts forecasting method produces reliable results?
This plot of predicted spending from the starts cash flow model compared to actual spending is a check on this analytical modeling method. It shows a comparison of the cash flows predicted from all construction starts vs actual spending. If the forecast plot is accurate, then actual spending should move in the same direction, at the same slope. While we sometimes see lag in the plots movement, over time, the cash flow model of new starts does a good job of predicting where spending is headed.
The Dec 2020 chart below incorporates changes to residential (only residential has been modified) from earlier 2020 forecasts: no delayed projects canceled; all delayed spending restarted by August; new construction starts beginning in August, for the final 5 months of 2020, fastest growth in 15 years. This shows the latest starts data as adding to the recovery forecast between May and December and moving the future forecast residential spending line up on the index.
Settings in the pandemic forecast model resulted in the residential divergence. First, projects delayed were predicted to take six to eight months to come fully back up to production. But residential project spending was fully back to prior levels by August, within 3 months from the May bottom. About 60% of the return to prior spending was supported by growth in residential renovations. The rapid growth in spending is represented by the steep recovery in the spending curve between May and August. Second, a small portion of jobs delayed were predicted to be canceled permanently. Based on the spending data, this likely did not occur at all, or the impact was very small. Finally, Dodge at that time was forecasting that residential new starts in 2020 would finish the year down slightly. With December starts data now in, residential starts for 2020 finished up 4%. In fact, 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.
Here’s the most recent forecast with 2020 revisions updated 7-1-21
The nonresidential buildings plots (and the residential plot prior to 2020) are remarkably close, providing an indication the method of analysis employed, cash flow of all construction starts to get spending forecast, is reasonably accurate. Below is the nonresidential plot to a larger scale.
The table below shows the 2020 forecasts published at midyear by numerous analysts, the first opportunity to incorporate impacts from the pandemic recession. This table compares Construction Analytics Midyear July 2020 forecast to eight firms that reported nonresidential forecasts in the AIA Midyear July Outlook. Two of those firms, FMI and ConstructConnect, also published full forecast reports at midyear. The Actual totals for 2020 based on data through December (2020 data revised 7-1-21), are shown in the first column. Forecasts, all compared to Actual 2020, are marked best, 2nd best, worst. Where there’s limited comparison (Total, Residential and Non-building), only the closest is marked.
Construction Analytics midyear 2020 forecast garnered more best estimates than any other firm when comparing Midyear estimates to actual totals for the year. No one got residential correct, some reasons cited above, but Construction Analytics was the closest. I think it’s fair to say, Construction Analytics Midyear 2020 forecast was closest to 2020 Total Actual overall. Though, I do remember some other times with red in my column. Markstein Advisors had a close 2nd best nonres bldgs midyear 2020 forecast.
7-1-21 Actual YTD 2020 updated to include 2020 revisions for final comparison.
This next table shows the current forecast for full year 2021 forecast published as of January 2021. Of the eight nonresidential markets in the AIA Outlook report, the spread between hi and low forecast is 14%-17% for 4 markets, but 24%-25% for 3 markets and a spread of 45% for lodging. Spreads that wide are indicating some forecasts are all over the place. This will get compared next January when we know the Actual amounts for 2021. Watch closely nonresidential buildings.
Also, in July, along comes the Midyear Outlook, when usually forecasts improve a bit. That also will get compared next January.
7-1-21 table below includes May ytd actual spending for latest comparison. Forecasts are all at start of 2021.
Pandemic Impact on Construction, Dec. 2020
12-15-20
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.
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.
The measure of decline due to Pandemic delays and shutdowns is not the difference between Q3 vs Q1 growth or spending. Nor is the impact measured by the current difference in ytd performance vs 2019. The measure of decline due to Pandemic delays and shutdowns is the difference between what was forecast for growth pre-pandemic vs actual growth.
New construction starts projected for 2020:
- Total 2020 Construction Starts now forecast down -11%, pre-pandemic forecast was up 2%
- Nonresidential buildings now down -22%, pre-pandemic forecast was up 1%
- Non-building infrastructure now down -15%, pre-pandemic was up 2%
- Residential new starts now up 1%, pre-pandemic was up 2.5%.
New starts for 2021 were originally forecast up 1.5% to 2% in all sectors. The current 2021 forecast shows residential up 4.5%, nonresidential buildings up 4.6% and non-building infrastructure up 11%. Residential is already at a new high, but nonresidential buildings and non-building infrastructure will still be lower than 2018.
Future impact from delays/cancellations and reduced starts
Total construction starts year-to-date for 10 months through October are now down only -11% from 2019 ytd. Total starts had been down -14% to -15% ytd for the previous four months. Nonresidential buildings starts are down -24% ytd and non-building infrastructure starts are down -14% ytd. Residential starts are now up ytd +2% from 2019.
The most recent four months total residential starts, Jul-Aug-Sep-Oct’20, posted the highest 4mo total since 2005. The next highest 4mo total since 2005 was for the period Nov-Dec’19-Jan-Feb’20. So, the two best 4mo periods of new residential construction starts in the last 15 years have occurred in 2020. In August, residential starts posted an all-time high. Much of the spending from these starts carries into 2021 and supports residential spending growth in 2021.
The following 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. Some effects of reduced starts have not even begun to show up in the data. A 20% decline in new nonresidential starts in 2020 results in a huge decline in spending and jobs in 2021-2022. Residential spending hit bottom in May 2020 and ultimately will post an increase in 2020. Nonresidential Buildings spending will not hit bottom until 2022.
Dodge updated their Outlook to show 2020 construction starts for nonresidential buildings fall on average 20%, less in some markets, but -30% to -40% in a few markets. Only warehouses is up. Non-building starts fall on average 15%. Only Highway/Bridges is up. Residential starts may post an unexpected gain in 2020 and are forecast to climb 4.5% in 2021.
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 22%, the affect that has on 2020 is reduced spending by -22% x 20% = – 4.4%. The affect it has on 2021 is -22% x 50% = -11%. In 2022-2023 the affect is -22% x 30% = -6.6%.
Many nonresidential buildings have durations that last 24 to 36 months, with peak spending 12 to 18 months from now. With the 22% drop in new starts this year, that peak spending 12 to 18 months from now will be impacted negatively. Some nonbuilding markets have project durations that go out 5 or 6 years, so the impact of a decline in 2020 starts may be felt at least until 2025.
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 cancelations, that has been retroactively reduced to +2.7%.
Starting backlog pre-pandemic forecast for 2021 was UP +0.3%. Due to fewer new starts in 2020, that has now been reduced to -10.6%. By far, the greatest impact is due to nonresidential buildings for which backlog declined by 17%.
If construction starts in 2020 do not outperform 2020 construction spending, then 2021 starting backlog will be lower than 2020. My current forecast (2020 starts down -10.7%) indicates 2021 starting backlog will be down by -10%. Spending declines into 2021 and remains depressed through 2023.
80% of all nonresidential spending in any given year is from backlog and could be supported by jobs 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.
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 shifted and remains in future backlog longer. 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 reduce future backlog but also that retroactively reduces the backlog that was on record at the start of 2020. Therefore, 2020 backlog is reduced by cancelations and future backlog is increased by delays, but reduced by cancellations and a loss of new construction starts.
Future impact on Backlog from delays/cancellations and reduced 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 at the start of 2020 would still contribute some spending for the next 6 years until all the projects in backlog are completed.
Total starting backlog will fall -11% for 2021 and -4% for 2022. Due to new starts declining by 22% in 2020, Nonresidential buildings backlog drops -17% for 2021 and drops -7% for 2022. For non-building infrastructure, a drop of 15% in 2020 starts results in a drop of 8.7% in 2021 starting backlog.
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.
The next table shows spending year-to-date (ytd) through October (released 12-1-20) along with spending forecast for the year. 2nd quarter construction spending activity low-point was down only 5.5% from the Feb peak. Construction spending through October ytd is up 4.3% with Residential ytd up almost 10%.
Almost every market has a weaker spending outlook in 2021 than in 2020, because of lower starts in 2020. Although starts are forecast down -15% to -20% in 2020 and then up +5% to +15% in 2021, the drop in starts in 2020 has the greatest impact on reducing spending in 2021. Most of the reduced spending impact from the lost starts is felt in the future, when those lost projects would have been reaching peak activity at the midpoint of construction. Nonresidential buildings starts in 2020, now down 28% the last seven months. Lowpoint of spending from lost 2020 starts is late 2021- early 2022.
Residential spending looks stable heading into 2021, Nonresidential Buildings spending drops -2% to -3% each quarter in 2021. By Q4 2021, nonresidential buildings spending is down 15% from Feb 2020. When looking at Total Construction Spending for 2021, residential growth obscures the huge declines in nonresidential.
YTD spending for Nonresidential Buildings is currently -1.2% and my 2020 forecast shows Nonres Bldgs ending the year down -2.1%. Some forecasters are predicting spending for nonresidential buildings will end the year down much worse compared to 2019. It would now be difficult to move the end-of-year forecast %change by much, with already 10 months recorded at an average of -1.2%. Also, some forecasts for 2021 predict spending for nonresidential buildings will increase. Remember, most of the reduced spending impact from the lost starts is felt when those lost projects would have been reaching peak spending.
Nonresidential Buildings construction will take several years to return to pre-pandemic levels. Although nonresidential buildings spending is forecast down only -2%, the gapping hole left by the 15%-25% drop in 2020 construction starts will mostly be noticed in 2021 spending. Project starts that were canceled, dropping out of new backlog between April and September 2020, would have had midpoints, or peak spending, April to September 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.
Construction Jobs are projected to fall in 2021. While 2021 Residential spending will climb about 10%, Nonresidential building spending is forecast to drop -10% and Non-building spending drops -4%.
A recent AGC survey of construction firms asked, how long do you think it will be before you recover back to pre-COVID-19? 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 Analytics 