Construction Analytics

Construction Data Briefs – Nov Data 1-3-24

January 3, 2024 8:37 am / 2 Comments on Construction Data Briefs – Nov Data 1-3-24

Overall forecast has not changed a lot from the last two months. I’ll add much more to this post in the coming days, but for now here is a summary of construction spending through November, Inflation through 3rd qtr or Nov where available, and resulting constant dollar volume.

This forecast is preliminary to the 2024 Outlook, which will be published in February after Census releases the initial Dec. 2023 spending (on Feb. 2nd) to begin closing out the year 2023, although 2023 spending will be revised three times after the February release. In addition construction starts, jobs data and inflation will be updated, all leading to a more accurate forecast for 2024 spending and inflation adjusted volume.

Total construction spending forecast is up 6.6% in 2023. Spending was up 12% in 2022 and 10% in 2021. Almost all of that is inflation. You can see the Constant$ line, with one lower dip in 2022, has ranged between $1400bil. to $1500bil. since mid-2019.

As we begin 2024, the current rate of spending for Nonresidential Buildings is already 3.5% higher than the average for 2023, so if spending stays at the current level and no additional growth occurs, 2024 Nonres Bldgs spending will finish the year up 3.5%. The current forecast shows a monthly rate of growth slowing to less than 0.5%/mo in 2024. Non-building Infrastructure is currently only 1% higher than the average for 2023, however the forecast is indicating steady grown of 1%/mo for all of 2024.

Residential current rate of spending is 1.5% above the 2023 average and is forecast to average an increase of 0.5%/mo for 2024.

One big question is how did the forecast for Manufacturing increase so much since the beginning of 2023. The starts forecast for 2023 increased by 35% since January. Starts for future years increased by 50%. Starts (contract awards) drives up the spending forecast since spending is a function of the future monthly cash flow (spending) of starts.

The largest increases to construction spending in 2023 are Manufacturing +$80bil, Highway +$18bil and Public Utilities (Sewage and Waste, Water Supply and Conservation-Rivers-Dams) +$15bil.

Residential regains the top spot in 2024 with a forecast spending increase of $68bil. Manufacturing is forecast to add +$33bil. Educational gains +$16bil and Power +$15bil.

Remember when referencing the Constant $ growth that the dollars for all years are reported here in 2019$. In this table, the nominal spending is divided by the inflation INDEX for the year. You can also deduct the percent inflation from any individual year of construction spending to find inflation adjusted $ for that year alone, however that method would not allow comparing the adjusted dollars to any other year. Setting a baseline year is necessary to compare dollars from any year to any other year.

Reference Inflation Data Construction Inflation 2023 updated 1-12-24

Construction JOBS increased 2.75% in 2023. We added 214,000 jobs (avg’23-avg’22). There are currently 8,056,000 construction jobs. The largest increase post 2010 is 321,000 jobs (+4.6%) in 2018. The average jobs growth post 2010 is 200,000 jobs per year.

Since 2010, average jobs growth is 3%/yr. Average volume of work growth since 2010 is 2.3%/yr.

In the last 7 years, 2017-2023, jobs increased 2.5%/yr. Volume of work increased only 0.8%/yr.

The following Construction Inflation plot (for Nonresidential Buildings only) shows three elements: 1) a solid grey bar reflecting the max and min of the 10 indices I track in my weighted average inflation index, 2) a solid black line indicating the weighted average of those 10 indices, and 3) a dotted red line showing the Engineering News Record Building Cost Index (ENR BCI). Notice the ENR BCI is almost always the lowest, or one of the lowest, indices. ENR BCI, along with R S Means Index, unlike final cost indices, do not include margins or productivity changes and in the case of ENR BCI has very limited materials and labor inputs.

Final cost indices represent total actual cost to the owner and are generally much higher. Producer Price Index (PPI) INPUTS to construction reflect costs at various stages of material production, generally do not represent final cost of materials to the jobsite and do not include labor, productivity or margins. PPI Final Demand indices include all costs and do represent actual final cost. The solid black line (above) represents the Construction Analytics Building Cost Index for Nonresidential Bldgs and is a final cost index.

This short table shows the inflation rate for each year. Useful to compare to last year, but you would need to mathematically do the compounding to move over several years. The plot below shows the cumulative inflation index, or the cumulative compounded effect of inflation for any two points in time.

Construction Data Briefs Sept data 11-7-23

November 7, 2023 7:47 am / 2 Comments on Construction Data Briefs Sept data 11-7-23

Total Construction Spending in 2023 is forecast at $1,960 billion, an increase of 6.0% over 2022.

Nonresidential Buildings spending is leading Construction spending growth.

With nine months in the year-to-date (ytd) for 2023, total all construction spending ytd is up 4.6%. Nonresidential buildings spending is up 22% ytd compared to Jan-Sep 2022. Manufacturing last month was up 72% ytd. I forecast then it would drop to 66% and this month revised that to 67%. Current ytd dropped this month to 70%.

Construction Spending thru Sept. Residential is down 8% ytd. Could add 7% in 2024. Nonresidential Bldgs is up 22% ytd. Expect +6% in 2024 Non-building Infrastr is up 12% ytd and could add another 11% in 2024

Residential construction spending fell only 8% from Mar’20, the pre-recession high, to May’20, the Covid low. From May’20 to May’22, spending increased 67% to the post-recession high. Since May’22 spending is down 12%.

Manufacturing construction spending, from 2015-2021, averaged $80bil/yr. For 2023-2025, manufacturing constr spending will average $200bil/yr.

Highway spending in 2023 is averaging $130bil and is expected to finish the year at $131bil. That’s up 15% from 2022 and up almost 27% in the last two years. Highway spending is expected to increase 25% over the next two years and may continue upward to a peak spending in 2026.

After nearly 8-10 years of fairly well balanced construction volume of work vs jobs, the last 2-4 yrs of volume growth (spending minus inflation) well below jobs, is now coming back into balance. Nonres Bldgs and Non-bldg volume (+11% & +6%) increased to support jobs. Jobs grow steady at 2.8%.

Non-bldg has a ways to go to get to balance. That work volume is on it’s way in the forecast, particularly from Highway and Public Utilities.

Actual residential jobs is probably higher than shown here as there are several issues with capturing all residential jobs.

Sum of all jobs vs Construction volume from 2011-2018 was balanced. In recent years, 2021-2023, jobs grew faster than volume. Nonres is now playing catch-up, volume is increasing faster than jobs..

Construction Jobs x hours worked is up 6% since the pre-pandemic high in Q1 2020. Construction volume (spending minus inflation) is down 5.5% since Q1 2020. These two indicators should move in tandem. (See plot above from Jan2011 to Jan2018) When jobs increase faster than the volume of work, productivity is declining.

For 2024 and 2025, volume of work is forecast to increase 3.5% and 4.0%. Most of that gain in 2024 and 2025 is from Non-building Infrastructure forecast growth of 7% and 8%. Jobs increase at a normal rate of 2.5% to 3.0% per year, so this growth in volume will go a long way towards setting jobs vs volume closer to balance.

An indicator I track looks at the predicted final spending (for Nonresidential buildings) for the year based on a projection based on the ytd for the statistically strongest months of the year, AMJJAS. These six months each average annual spending variation from average with standard deviation of less than 0.2%. This subset of annual data has produced an annual forecast within less than 2% variance from actual for 22 years. In fact, in 22 years this forecasting check has varied from actual by greater than 1.5% only twice. The average variation for 22 years is 0.7%. Only once in 22 years has the actual annual spending fell outside the range predicted by the statistically strongest months.

Another indicator I track is the forecast vs the actual spending. This plot shows Nonres Bldgs and Non-bldg Infra forecast vs actual. The track of actual spending is bumpier, but tracks right along with the forecast. My plot for residential was on track until the surge in 2020-2021.

Construction Data Briefs AUG Data 10-6-2023

October 2, 2023 5:09 pm / Leave a comment

Total Construction Spending in 2023 is forecast at $1,950 billion, an increase of 5.5% over 2022.

Nonresidential Buildings spending is leading Construction spending growth. With eight months in the year-to-date (ytd) for 2023, total all construction spending ytd is up 4.2%. Nonresidential buildings spending is up 22% ytd compared to Jan-Aug 2022, the fastest rate of nonres bldgs growth in over 30 years. Only 2006 & 2007 come close at 13% & 19% growth years. Commercial/Retail spending peaked in January 2023 and has dropped every month since. It will drop from a ytd of 8.5% down to a yearly total of 5%. Manufacturing is up 74% ytd and will hold on to finish the year up 66%.

Nonbuilding spending ytd is up 12%. The largest advances are in Highway, up 16% ytd, and Public Utilities. Sewage/Waste Water is up 24% ytd, Water Supply is up 15% ytd and Conservation/Rivers/Dams is up 26% ytd .

Residential Spending ytd compared to Jan-Aug 2022 is still down -8.7%. Residential spending peaked in Mar 2022 and had a recent bottom in Apr 2023. Since April, the annual rate of residential spending is up 5.6%, almost entirely due to an 8% increase in the largest segment, single family spending, 45% of all residential spending. Multifamily spending is is up 6%, but it’s only 15% of residential spending.

Spending Forecast

Total Construction Spending in 2023 is forecast at $1,950 billion, an increase of 5.5% over 2022.

Nonresidential Buildings spending is forecast at $662 billion, an increase of 20.6% over 2022.

Non-building Infrastructure spending is forecast at $421 billion, an increase of 12.9% over 2022.

Residential Buildings spending is forecast at $867 billion, a decline of -6.5% less than 2022.

This forecast does not include a recession.

Spending by Sector Current $ and Inflation Adjusted Constant $

In 2023, it’s Nonresidential Buildings leading growth. In 2024, it will be Non-building Infrastructure leading spending growth. Both are expected to post spending growth greater than the inflation index, so there will be real volume growth. In 2020+2021, residential volume grew 10%/yr. For 2023, residential volume drops 10%. Nonresidential Bldgs will post a 13% increase in volume in 2023 and flatten out at that level through 2024. Non-building volume increases 6% to 7%/yr for the next few years.

New Construction Starts

The rate of construction spending in 2023 will be influenced predominantly by a 50% 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 near $500 billion/year. From Mar-Aug 2023 starts averaged $400 billion/year. Many of those projects will have peak spending in 2023 or 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 Q1 2023, residential starts dropped another 12% below 2nd half 2022. Finally in July and August, starts regained some strength coming in 33% higher than the lows in Q1. Residential starts are still down 17% year-to-date vs 2022.

Nonresidential Buildings, in 2022 posted the largest ever one-year increase in construction starts, up 50%. Nonres Bldgs starts in the 2nd half 2022, averaged 67% higher than any other 6mo period in history. Starts fell 20% in the 1st half 2023 but still posted the 2nd highest 6mo average ever. Nonres Bldgs starts are down 17% ytd.

Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150%.

Non-building starts for the 6 month period Mar-Aug 2023 posted the best 6 months on record, up 30% from the average of 2022. The 2nd half 2022 was up 50% over 1st half 2022. The 6 months Mar-Aug 2023 is up 18% from 2nd half 2022. For 2023, Highway/Bridge and Power have the strongest gains. Total Non-building Starts for 2023 are forecast up 25%. Non-bldg starts are up 22% ytd.

Current $ Spending, Inflation and Constant $ Volume

Inflation adjusted volume is spending minus inflation, or to be more accurate, spending divided by (1+inflation). Inflation adds nothing to volume growth. The following table shows spending, inflation and volume (spending without inflation) for each year. Spending is current to the year stated. The values in the constant table are indexed to a constant value year, 2019. This shows business volume year to year, can be a lot different than spending would indicate. When inflation is positive, volume is always less than spending by the amount attributed to inflation.

SEE Construction Inflation 2023

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. Therefore, Revenue does not measure volume growth. In 2022, Nonresidential buildings inflation was 12%, so business volume was 12% less than spending, or 12% less than revenue. Residential volume was 15% less then spending.

Through August 2023, Overall Construction Spending is up 28% in the 42 months since the onset of the pandemic, but, during that same period inflation increased 33%. After adjusting for 33% inflation, constant $ volume is down 5%. 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.

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 $, fell 25% from Feb 2020 to Sept 2021, and hit a second deeper low in mid-2022. Since then, the actual change in nonres bldgs volume has increased 18%. Yet nonres bldgs jobs increased only 3.5%. That still leaves volume nearly 10% lower than the pre-pandemic high. If the same production levels ($ 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, but it is improving because volume is increasing rapidly and jobs are increasing slowly.

Nonresidential Buildings spending in 2023 is forecast at $660 billion, an increase of 20.6%, or an increase of $113 billion in 2023. Non-building Infrastructure spending is forecast up 13% ($50bil) in 2023 and 10% ($40bil) in 2024.

Generally, it takes 5000 jobs to put-in-place $1 billion in one year. It could easily vary from 4000 to 6000. So an add of $100 billion+ in 2023 would need 500,000 new jobs. Adding $200 billion over two years would need 1,000,000 new jobs.

Construction Jobs vs Construction Volume

These plots updated to jobs report 10-6-23

Since Q1 2020, pre-pandemic high, spending increased 28%, but inflation was 33%, so real volume of work is down 5%. In that time jobs increased 5%. Jobs are way ahead of volume, but volume is backfilling in the void, especially in nonres bldgs.

This plot with baseline Jan 1, 2011 shows that jobs increase pretty consistently at about 3% to 4% per year. Except for the spike down in 2020, rate of growth (slope of the jobs line) is consistent for 13 years.

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 construction jobs growth is about 250,000 jobs per year and maximum prior growth is about 400,000. The workload discussed above would require 500,000 new jobs/yr., 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 we may all 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 also expand the labor force and the suppliers to the industry that fast).

My first thoughts were, Jobs may not be able to increase fast enough to put-in-place the forecast spending. This impediment needs to be accounted for and could reduce overall construction spending forecast over the next two years. The most likely markets where a reduction might occur are Manufacturing, Highway and Public Utilities.

However this is what happened the past year. In the last 12 months, Aug’22 to Aug’23, Nonres Bldgs jobs are up 3.8%. Nonres Bldgs spending is up 21%, by far driven by Manufacturing, but after ~6% inflation, volume of nonres bldgs workload is up 15%. So, we have a 3.8% increase in jobs to accomodate a 15% increase in volume.

The last year has shown a huge increase in the volume of nonres bldgs work, without an equal increase in jobs. This shows the excess nonres bldgs jobs for the past three years is now absorbing new workload, (a 3.8% increase in jobs to accomodate a 15% increase in volume), without collapsing the labor force or canceling the volume. However, the ability to absorb work into the existing workforce cannot continue.

Non-building, over the next two years, could experience the same kind of growth spurt as Nonres Bldgs., a forecast increase in volume the next two years without an equal increase in jobs. Volume which was lower than jobs since 2021, is now increasing faster than jobs. Non-bldg volume is forecast up 6% to 8%/year the next 3 years. Jobs increase at an avg. 3.5%/year.

Residential volume has exceeded residential jobs all the way back to 2011. The recent decline in volume brings the two even, if the jobs hold the pace.

SEE more discussion on Volume and Jobs

here 2023 Construction Volume Growth

here 2023 Midyear Jobs Outlook

and here Infrastructure Construction Expansion – Not So Fast

Inflation Sept 2023 5min Video

September 19, 2023 2:48 pm / 1 Comment on Inflation Sept 2023 5min Video

edz-2023-inflation-forecast-sept-2023-rec Download

This is a voice over power point converted to MP4. It’s a huge file. Only 9 slides but almost 225meg, 50x more memory than the original 9 slides.

Present Cost-Future Cost vs Present Value-Future Worth

September 13, 2023 12:04 pm / Leave a comment

A reader asked an interesting question, one that does not often come up in construction analytics. The following is an example to explain the difference.

The question: Our firm engages in construction projects that must be fully funded from cradle to grave to secure approval. A portion of these projects is remediation that will occur 10 years from now. What would be the Present Value to fund a project needed to be performed 10 years from now based on a similar project that cost $1,000,000 three years ago?

There are really two parts to this question. 1) What is the construction cost of remediation 10 years from now? 2) What is the Present Value of money today needed to fund that construction cost ten years from now?

is determine the construction cost in 10 years based on inflation rates and a known project cost.
is What is the value of money. How much do I need today to fund the project 10 years from now.

For the sake of this example we must assume some rates. Assume construction cost inflation the last three years was a total 25% and long term average inflation is 4%.

Present Cost to Future Cost is solved by applying construction inflation. To estimate cost of a project 10 years from now, we can only rely on long term average inflation for the type of work being performed. Long term average inflation is not the same as the inflation we have experienced over the last three years. So first let’s inflate the project from three years ago at 25% to today’s construction cost.

$1,000,000 (three years ago) x (1+25%) = $1,250,000 = similar project cost today.

Now let’s use long term average inflation (4%) to determine the construction cost 10 years from now. Inflation (like interest) must be compounded. So total interest over 10 years is interest for one year raised to the 10th power.

$1,250,000 (today’s cost) x (1+4%)^10 = $1,250,000 x 1.48 = $1,850,000

We would never assume the long term inflation to be repetitive of what we’ve seen over the last three years, so we use what we know occurred over the last three years to get to today, then project forward at the long term average historical rate.

The remedial work 10 years from now is estimated to cost $1,850,000. That is the Future Worth (FW) of the construction work needed. What is the Present Value (PV) of money needed to fund that Future Worth (FW)? How much must be invested in an account today so that it will grow to provide the funds needed to perform the FW work?

The growth rate of money is not the same as the inflation rate of construction. For the sake of this example, we need to make some assumption here for the growth rate of money. Let’s assume 3%. If we were to invest money today it can grow at 3%/year for 10 years. The answer to how much is needed to invest today (PV) to provide the full sum needed to fund the future (FW) is entirely dependant on the interest rate that can be secured for the term of the investment. We need $1,850,000 ten years from now. Divide the FW by the compounded rate of interest or money growth to find PV.

$1,850,000 (FW) / (1+3%)^10 = $1,850,000 / 1.34 = $1,376,000 (PV)

A Present Value (PV) of $1,376,000 must be invested today at a rate of 3% growth to ensure enough funds are available 10 years from now to perform the remediation work, a (FW) of $1,850,000.

Job Openings – Behind the Headlines

August 31, 2023 8:41 am / 6 Comments on Job Openings – Behind the Headlines

Construction Job Openings – Behind the Headlines

Recent data indicates ~ 300k job openings. Let’s look at support. To support those openings, there must be an equivalent added volume of work.

As we entered 2020, construction spending (in current $) was at a (then) all-time high of $1.530 trillion(t). Let’s set that point in time as the base and track growth since. Construction spending peaked in March 2023 at $1.970t and is currently at about $1.950t.

Volume growth in constant $ (constant $ = spending minus inflation) fell from $1.530t to $1.350t in Oct’22, has since returned to $1.450t as of June. So real volume growth is up off the bottom, but is still $80t or 5% below 2020. It is forecast to fall $50t over the next 6 months and return to current level in mid-2024.

Jobs, as we entered 2020, stood at 7.600 million(m). Jobs rapidly fell to 6.500m but recovered most of that by Dec 2020. Jobs now stand at 7.970m, up 5% since Jan 2020.

So, let’s summarize the facts: Since Jan 2020, spending is now nearly equal, volume of work is down 5%, but jobs are up 5%. So, since Jan 2020, jobs have increased 10% in excess of volume of work to support those jobs.

By my calc, if we were to add 300k jobs, either today or over the next year, we would see jobs increase by another 4%. Jobs growth since Jan’20 would exceed volume growth by nearly 14%. You might argue that 300k openings are there to fill the void of jobs supporting the current workload, but jobs growth already exceeds volume growth by 10% in the last 3 years.

Anyone want to try to explain how job openings of 300k is supported by the data?

Note 1: Job openings as of July are closer to 400,000

Note 2: plots shows baseline back to 2020 and 2001. Baseline 2001 situation becomes worse. See prior post https://edzarenski.com/2023/08/05/midyear-23-jobs-outlook/ for plots to baeline 2011 and 2020.

Midyear ’23 Jobs Outlook

August 5, 2023 10:43 am / 2 Comments on Midyear ’23 Jobs Outlook

Construction JOBS continue to creep higher, even when volume is falling. From Apr’22 to Oct’22 jobs increased 1.5% but volume of work dropped 10%. Jobs and volume should track together as seen from 2011 to 2018. Since Oct’22, jobs are up only 2% while volume up 7%. Volume is catching up.

Jobs have been increasing at 3%/year, or approx 200k to 300k jobs per year. In Feb 2020 there were 7.6 million construction jobs. Now there is almost 8.0 million. The average for 2020 dropped 3% or 170k jobs. But we regained jobs at 2.5% growth in 2021, 4.2% in 2022 and so far over 2% in 2023. Now this is interesting, because we did not see an increase in average volume in 2021, 2022 or 2023. In total, jobs are up 4.8% since Feb 2020, while volume of work is down 4.7%.

Construction Jobs have been on an even rate of growth approx. 2.5% to 3% per year, even when volume is falling. Spending has been on a bumpy climb, but keeps climbing. Without inflation real volume of work overall since 2020 has not increased at the same rate as jobs.

Current July Jobs are up 1.5% since Dec.’22, up 3% vs the average for 2022. July will be pretty close to the average for 2023. As construction inflation slowed down (has been slowing since mid-2022), volume gained ground on jobs over the last 9 mo., but jobs since Jan 2020 are still 10% higher than volume.

Here’s a look at total jobs just since 2020

Why do jobs sometimes/often grow faster than volume to support those jobs? Some possibilities:

When inflation is unusually strong, business planners may misjudge growth. Planning jobs growth on inflated revenues that net much lower than expected volume may lead to misjudging jobs growth. Result is jobs growth faster then volume.

When volume is decreasing, firms may be reluctant to (or smart not to) let go jobs. See the period on the above plot from Mar 2022 thru Oct 2022. Vol dropped 10%, Jobs increased 2%. So, the calculation shows a big excess in jobs for that period, because volume growth doesn’t support it. Within the next six months, volume increased 7%, making up half the difference.

Here’s jobs vs vol in each sector.

Notice how Rsdn jobs barely declined in 2020, but Rsdn volume increased 10%. Did that set off cries of jobs shortage in Rsdn? Not so in Nonres.

In Nonres Bldgs, volume by 2021 had fallen below growth in construction jobs. The deficit reached its worst in 2022 but in the last 9 months volume growth far faster than jobs growth has evened the balance.

Nonbuilding construction volume fell to a deeper deficit than Nonres Bldgs. But we can see the gap closing as volume increases faster than jobs.

These above three sector plots go back to base 2019, showing how much percent change there has been since 2019. For a longer term look, here below is a plot of Nonresidential Buildings back to 2011. On this plot we can see jobs growth, when compared to 2011, for Nonres Bldgs, is above volume growth since 2017. The low point of volume was in 2021. 2022-2023 has posted the most rapid growth in many years. This closes the gap between Nonres jobs and volume, very helpful to the productivity outlook.

When splitting out jobs by sector we must always remember that some Nonres bldgs jobs actually work on constructing residential buildings (for ex., steel and concrete on a multifamily hirise) but remain counted as nonres jobs. Also, some undocumented workers may not be counted at all in residential jobs. That skews the data plots. But you can see that it would reduce the jobs in Nonres and increase the jobs in residential, improving both plots.

Construction spending data is indicating a slight dip in volume growth over the 2nd half 2023, but then leading into much stronger growth in 2024 in all sectors. Volume by Feb’24 is back to today’s level after falling 5%. I don’t expect jobs to decline with the drop in volume. Maybe slow down. I think at worst jobs hold steady for a few months before resuming 2.5%-3% annual growth later this year.

When jobs continue to increase while volume is dropping, that wrecks productivity. But sometimes volume increases rapidly while jobs grow steady at a 3% rate. Look at the period Oct’22 thru Jan’23. Jobs increased 2%, but volume quickly jumped 6%.

The number of jobs required to put-in-place $1 billion of construction in one year, as plotted below, about 5000 for residential, is the inverse of the plot above, the annual amount of $ put-in-place per job, about $200,000 for residential.

Midyear ’23 Forecast Updated 10-12-23

July 19, 2023 7:45 am / 4 Comments on Midyear ’23 Forecast Updated 10-12-23

10-12-23 Updated PPI INPUTS added PPI plots

8-11-23 Updated PPI Inputs and Final Demand tables

8-12-23 Added Table that shows Spending, Inflation, Index, Constant$

When Census released May construction spending data on July 3 they also revised spending for all markets for the last 2 years. Largest revisions are usually in previous year. This changes % growth and baseline for the start of 2023.

Census added $50 bil to 2022, $27 bil to 2021 and $6 bil to Jan-Apr 2023. Largest revs 2022, Rsdn +$17bil, Mnfg +$7bil, Comm/Rtl +$6bil, HiWay +$4bil. Largest revs 1st 4 mo (JFMA) 2023, Rsdn +$6bil, Mnfg +$2bil. 2023 Forecast$ went up, but % increase went down, because 2022 $ revs went up by more.

My midyear forecast here would be compared to the AIA Consensus Midyear July 2023 Forecast.

AIA Consensus Midyear July 2023 Forecast.

A significant difference here is that the AIA forecasts are all compared to 2022$ before the Census revisions published 7-3-23, which are included in my forecast. That would mean that all AIA Forecast, in all markets, would be lower since Census revisions were up in every market.

Be careful out there. Here are other significant watchouts to be aware of in available midyear forecasts:

One forecast is based on a recession.

No other forecast (as of mid-July) besides Construction Analytics (this forecast) includes the Census 2021-22 updates to spending put-in-place of $27bil in ’21 + $50bil in ’22.

One forecast has public works adding 2% to 4%/yr spending the next few yrs, while new starts are up 50%.

There is a remarkable 50% spread ($52bil) on the forecast growth in manufacturing spending in 2023.

There is a 15% ($270bil) spread in forecasts for total$ in 2024.

There is a 16% ($100bil) spread just in nonres bldgs forecast for 2023.

Residential Construction Spending Since Nov, Rsdn spending has seesawed up/down in a range from $840bil to $880bil. Currently at the high for the year. Will move slightly higher, but falls from peak in Q3. 2023 is currently down ytd 10%, will finish the year down 7%.

The big story is manufacturing construction spending. The average monthly expenditure on MNFG constr spending for the 4 years 2017-2020 averaged an annual rate of $78 billion, ending Dec’20 at $73bil. In 2021, spending was flat at $73bil. But by Dec’22, spending increased to $100bil. In the 1st 5mo of 2023, MNFG construction spending increased to an annual rate of $150bil.

8-12-23 Added this table, 2015-2025 Spending Inflation, Index, Constant 2019$

The path to constant volume starts with current spending. This table shows the progression of how we get there. Constant volume growth is what we compare to, for business volume or jobs growth.

Construction JOBS continue to creep higher. From Apr’22 to Oct’22 jobs increased 1.5% but volume of work dropped 10%. Jobs and volume should track together as seen from 2011 to 2018. Since Oct’22, jobs up only 2% while volume up 7%. Volume catching up.

Construction spending, particularly nonresidential buildings, stalls for the 2nd half of 2023. Spending is up/dn thru year end, ending the year about where it is now. But by year-end, after taking out inflation, volume will be down 2%. In last 3 yrs, jobs seldom drop along with volume. I think jobs will not track volume down 2%, but finish 2023 about where they are now.

Construction Spending since Feb 2020 has increased (monthly SAAR Current $) $425bil, up 28%. But inflation increased $480bil (32%). Actual volume of work has decreased 3.5% or $55bil (monthly SAAR Constant 2019 $) since Feb 2020. The big decline in constant $ in 2020 and in 2021 is nonresidential buildings. The big decline in 2022 is residential.

PPI Data for June

PPI Mtrl Inputs to Construction are up less than 0.1% in June, up less than 2% ytd. Cost of Inputs was up 30% over the last 2yrs. Year-to-date 2023 vs average 2022 Nonres Bldgs down 0.5%, Rsdn down 3.2%, Concrete products UP 10%-13%, Lumber/Plywood down 22%, Steel Products down 12%-15%, Diesel Fuel down 30%.

PPI Final Demand Construction for June, most Bldgs and Contractor costs peaked in March. 2nd qtr costs are not yet complete until July data gets released in mid-August. (The PPI Final costs is a three-month series that is corrected in data released for Jan, Apr, Jul and Oct.) Most costs are down 1% since Jan. Current avg all Bldgs and Trades cost are up 9% from avg 2022, but costs are headed down.

PPI INPUT TABLES UPDATED 10-13-23

The last column, YTD vs 2022avg, gives an indication of 2023 avg if current YTD costs remain constant for the remainder of the year. However, Inputs to Nonres Bldgs has been down 3 of last 4 qtrs. Res has been down 4 of last 5 qtrs. So it’s likely we will see some more downward pressure in the indices.

PPI FINAL DEMAND TABLE UPDATED 8-11-23

The PPI Final Demand index is a three-month series that is corrected in data released for Jan, Apr, Jul and Oct. Most Bldgs and Contractor costs peaked in March. With this PPI Final Demand Construction for July, 2nd qtr costs are now complete (with the July correction for MJJ). Most costs are down at least 1% since Jan. Current avg all Bldgs and Trades cost is up 8% from avg 2022, but costs are headed lower.

The Final Demand index posted declines for the two most recent adjustment months, Apr and Jul. If distributed back to the months being corrected, Apr into Feb and Mar, Jul into May and Jun, it shows all bldgs, except Office, have at least 6 months of declining cost. Office has been declining for only 3 months but Warehouse has been declining for 8 months. Buildings are down 1% to 3% so far this year.

The Avg Nonres Bldgs is down 1.4% in the last two quarters. And yet, if we hold the current index constant, keep it at today’s rate for the rest of the year, then the avg for 2023 will be up 7.8% from the avg 2022. I think, based on downward trend in costs, it will be lower than that at year end.

Who’s Forecast is Closest?

June 26, 2023 12:47 pm / Leave a comment

Twice a year, in January and July, The AIA Consensus Forecast is released. The AIA solicits Nonresidential Building construction spending forecast data from a number of firms and publishes the collected data. It can be helpful to compare the forecasts to current actual data. This provides some clues as to which forecasts are in the ballpark and which just don’t seem to be on track with reality.

The following table presents the AIA 2023 Consensus Forecasts published in January. Alongside the AIA Forecasts is my forecast, Construction Analytics 2023 beginning of year nonresidential buildings forecast and the Actual year-to-date spending published by Census. The ytd values are not much different than the current forecast for the year. The values highlighted in green are those that are closest to the current ytd. and expected forecast for the year.

Just one example to highlight forecast performance, more than half of the forecasts submitted to the AIA Consensus for Manufacturing were 10% or less for all of 2023. The current year-to-date spending for manufacturing is up 83%. My current forecast for the year is 67%.

The AIA January Consensus forecast had Nonresidential Buildings up 5.8% for the year. Construction Analytics forecast was 15.8%. The current ytd is 30%.

The Midyear 2023 AIA Consensus will soon be published. I would expect to see some drastic revisions to some of the input forecasts to catch up to actual spending. Construction Analytics will publish a midyear forecast after the July 1 Census data release that includes the revisions 5 years back. FWIW, Construction Analytics midyear forecast, for the last 3 years, has come closest to the actuals for the year in more markets than any firm’s forecast included in the AIA Consensus. As you can see in the table above, it’s looking pretty solid that Construction Analytics beginning of year 2023 forecast also comes closest to forecast for the year. Closest comparison is made to my current 2023 forecast, in table below, so there is room for change. Year-end actual might not hit my forecast, so… Anyway, the percent increase in 2023 forecast shouldn’t change much with July data, so it’s a preview of my midyear forecast.

On July 1st, the Census will release the construction spending data for May. Along with that, they will revise data back 5 years. Usually, the biggest revisions are to last year. The revisions can sometimes be large enough to sizably change the percent growth within a market from year to year.

This following table shows YTD and my current forecast for 2023 and 2024. Discussion of the forecast is in the preceding post. Construction Data Briefs JUN 2023

Construction Data Briefs JUN 2023

June 16, 2023 8:31 am / Leave a comment

Nonresidential Buildings spending is leading Construction spending growth. For the first four months of 2023, total construction spending year-to-date (ytd) is up 6.1%. Nonresidential buildings spending is up 30% ytd compared to the same four months 2022, the fastest rate of nonres bldgs growth in over 20 years. Nonbuilding spending ytd is up 11%. Residential spending peaked in March 2022. Since then the annual rate of residential spending has dropped 11%.

SPENDING FORECAST

Total Construction Spending in 2023 is now forecast to reach $1,915 billion, an increase of 6.4% over 2022.

Nonresidential Buildings spending in 2023 is now forecast at $660 billion, an increase of 26.2% over 2022.

Construction Spending through April is up 6.1% ytd. Spending is forecast to finish 2023 up 6.4%.

Total construction spending for 2023 is on track to increase +6.4%. Residential -8.1%, Nonres Bldgs +26.2%, Nonbldg +14.4%.

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.