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Construction Data MAR Briefs 5-5-24
Updates to Forecast, spending, starts, inflation, jobs
SEE ALSO Construction Analytics Outlook 2024
A side note, before I begin with the economic data, sometime within the next few weeks, I expect by May 31st, this blog will record the 1,000,000 view. Nearly 500,000 people read on average 2.1 articles every visit. Inflation articles draw the most attention, with a read rate of about 1000 times a week on a slow week and 2,000 on a busy week. Thank you to all my visitors. Keep reading!
2024 construction spending will be measured to the avg of 2023, $1980 bil. The average Seasonally Adjusted Annual Rate (SAAR) for 2023 is the total spending for 2023, but is was lower in Jan and higher by Dec. By Dec the SAAR was already 6% higher than the average for 2023. So we began 2024 with Dec spending at a SAAR 6% above avg 2023.
As of MAR, the total SAAR is 8.1% above 2023. Rsdn is +5.4%, Nonres Bldgs +10.0%, Nonbldg +10.8%. If growth stalls at the current level for the rest of the year, meaning, if we were to end the year with the SAAR unchanged from today, then we would finish with these gains for 2024. The trend in most cases is up, so I expect end of year we will be a little higher than today.
2024 construction spending for Nonres Bldgs, as of MAR, measured to the 2023 avg, is now +10.0% and trending up. We began 2024 with Nonres Bldgs Dec spending at a SAAR 6% above avg 2023. The American Institute of Architects (AIA) Consensus for Nonres Bldgs, published at the beginning of the year, averages +4% growth over 2023. Only one of the 10 forecasts for Nonres Bldgs spending in the AIA 2024 Consensus is still above the current reading. So, I think it’s safe to say, the AIA Consensus was low right from the very start.
The trend in Nonres Bldgs construction spending is up 18 of the last 19 months and continues up for the next 12 months. To fall to the AIA Consensus average of +4% for the year from the current SAAR, up +10.0%, the remaining 9 months of 2024 would need to fall from the current +10% to average only +2% higher than 2023. It may not be apparent, but that is a continuous decline of more than 1.5% every month for the next 9 months. That’s like falling off a cliff next month and not being able to get up. That’s unrealistic. Unless something sets off a deep recession similar to 2009, that will not happen.
At the beginning of 2007-2010, the first sign of recession for construction was a decline in 2007 of 25% in residential starts. Then in 2008 residential starts fell 40%. In 2009, both residential starts and nonresidential buildings starts fell 30%. Nonbuilding starts fell only 6%. By 2010 starts were increasing. But spending lags starts. Residential spending fell 60% from 2006 to 2009. Nonresidential buildings spending fell 33% from 2008 to 2010.
Although nonres bldgs starts fell 18% in 2020 and residential starts fell 11% in 2023, neither led to a devastating drop in spending as recovery occurred quickly. There is nothing in the current outlook to indicate recession, on any horizon. This forecast does not anticipate a recession.
Since the end of 2019, (in Dec 2019 spending hit $1,464T) total construction spending as of MAR’24 is up 46%. After inflation, Volume is up only 6%. The real Volume of Business is spending minus inflation. More than 85% of the spending growth since Dec. 2019 is inflation. If current projections hold, the total business volume through year 2024 will have grown 10% since 2019. ALL business plan forecasts and labor demand should be based on this 10% growth. Inflation adds nothing to business volume.
Over the last 9 months, residential new starts (as reported by Dodge) averaged the highest since the peak high in the 1st half of 2022. For Q1’2024, residential starts are 27% higher than Q1’2023. Currently, residential starts for 2024 are averaging 8% higher than the total in 2023. Residential spending peaked at an all-time high in Q2’22. Spending has been level or increasing the last few months at a rate 6.5% lower than the peak, but at a rate 55% higher than Dec 2019. Due to the short durations in residential building, fluctuations in starts are more quickly apparent in spending. Expect both nominal and real (inflation adjusted) spending to continue increasing thru the 1st half 2024, then drop back slightly in the 2nd half 2024. Spending is expected to increase 7% in 2024 over 2023. Volume after inflation should grow 3%.
Single Family spending YTD through Mar. is up 16% from Q1’2023. Single Family rate of spending through Mar. is up 11% over the average (total) spending in 2023. Multi-family spending for Q1’24 is up 6% from Q1’23 and is 2.5% lower than peak spending in Aug ’23, however it’s still up 1% over the avg spending in 2023. These are all nominal values, so real growth is lower. But residential inflation for 2023 was only 3%, so not much lower.
An avg spending curve for long-duration Non-bldg Infra is 15:30:30:20:5. The greatest spending impact does not show up until year two and three after the year in which the projects start. Example: If 2024 posts $100bil in new starts for Infrastructure, only $15bil of that gets put-in-place in 2024. $30bil would get put-in-place in 2025 and 2026.
Plots below compare volume growth to jobs growth. Notice the slope of the increase in jobs is fairly constant, regardless of changes in volume growth.
In the past 18 months, Nonresidential Buildings construction spending increased 37%. Nonres Bldgs JOBS increased only 7%. Normally, this would be explained by inflation, but in this case after adjusting for inflation volume still increased 28%. 18 months, +28% volume, +7% jobs.
Jobs and volume of work should be moving together, evenly. The construction industry has been saying jobs shortages, and yet over an 18mo period, the nonresidential bldgs sector added 20% more volume of work than added jobs. Seems to me that would indicate that volume was absorbed by existing jobs. If there were a significant jobs shortage, either the existing crew would need to work overtime, hours worked would have increased, or the work would not have been put-in-place and would potentially have been delayed or postponed. Neither happened. The fact that the work was put-in-place would indicate that the existing workforce readily absorbed the excess workload.
Since 2016, TOTAL construction spending has increased 63%, but after inflation, business volume increased only 6%, or 1%/yr. From 2016 to 2023, jobs increased 2.5%/yr. When jobs are increasing at a greater rate than the volume of work, productivity is declining. That is shown on these plots when the jobs line is above the volume of work line. Volume and jobs should be moving together.
In 2024, construction volume may increase 6%. Don’t expect jobs to increase 6%.
Since 1980, the fastest rates of growth in construction jobs were 1983-85 avg 6.0%/yr. and 1994-99 at 5.4%/yr. All other plus years averaged +3.2%, with only six years above 4%.
Since 2000, (excluding negative yrs, all associated with recessions) construction jobs growth is 3.3%/yr. and average real volume growth is 3.4%. I would expect future jobs growth to remain within the historical averages, somewhere in the 3%-5% range.
Construction Analytics Outlook 2024
Construction Analytics Economic Outlook 2024 includes Construction Data – DEC 2023 Data 2-7-24
2-22-24 At the bottom of this article is a downloadable PDF of the complete 2024 Outlook
Here is a summary of construction spending through December 2023, Inflation through 4th qtr. or Nov where available, and resulting constant dollar volume. 2023 spending will be revised three times in 2024, Mar1, Apr1 and Jul1, and then again on Jul1 2025. Historically, almost all revisions are up.
Construction spending preliminary total for 2023 is up 7.0%. But nearly 80% of that total is inflation. Except for Nonresidential Bldgs, spending increased 23%, so inflation is only 25% of that. Even deducting inflation still leaves 75% of spending as volume growth Most of that growth is in Manufacturing buildings.
Spending is up a total of 42% since 2019; up 8% in 2020, 10% in 2021, 12% in 2022 and now 7% in 2023. But volume after adjusting for inflation is up only 5% total. You can see the Constant$ line, with one lower dip in 2022, has ranged between Constant$1400bil. to $1500bil. since mid-2019.
Construction spending total forecast for 2024 is up 10.7%. Nonresidential Buildings is forecast up 8.8%, Non-building Infrastructure up 15.8% and Residential up 9.7%. Lower inflation in 2024 means more of that spending is counting towards real volume growth. I’m expecting only 4% to 5% inflation for 2024, so real volume growth could reach 6% for the first time since 2015. From 2012-2016, volume growth averaged 6%/yr. For the last four years, 2020-2023, 42% spending growth vs 37% inflation growth netted only 5% total real volume growth. Since 2017, volume growth averaged less than 1%/yr. Non-building Infrastructure volume could increase 10%+ in 2024.
New Construction Starts
Dodge Construction Network (DNC) monthly news article of construction starts by sector provides the data from which the following is summarized.
Total construction starts for 2023 ended down 4%, but Nonresidential Buildings starts finished down 7% and Non-building Infrastructure starts were UP 16%. Residential starts decreased 12% in 2023.
Total construction starts for 2024 are forecast up 7%. Nonresidential Buildings starts are forecast up 5% and Non-building Infrastructure starts up 8%. Residential starts are forecast up 10% in 2024.
In recent years, Nonres Bldgs new starts averaged $300 billion/year. In the 2nd half of 2022, starts averaged near $500 billion/year. For the 1st half 2023 starts dropped to a rate of $390bil./yr., which is still well above the recent average. Then, for 2nd half 2023, starts came back up to average $430 billion/year, the 2nd highest half year average. A 50% increase in new nonresidential building starts in 2022 has a positive impact on the rate of construction spending in 2023 and 2024. It will continue to add lesser impact into 2025. Projects starting in 2nd half of 2023 could have midpoint of construction, point of peak spending, in 2024 or into 2nd half of 2025, some real long duration starts even later. So, the major spending impact from starts is sometimes one or two years later.
Residential construction (Dodge) starts posted the five highest months ever, all in the 1st 6 months of 2022. In the second half of 2022, residential starts fell 15%. In Q1 2023, residential starts dropped another 12% below 2nd half 2022, the lowest average since Q1-Q2 2020. Finally in July and August, starts regained some strength coming in 33% higher than the lows in Q1. Residential starts finish 2023 down 12% vs 2022. Forecast is up about 10% in 2024.
Nonresidential Buildings, in 2022 posted the largest ever one-year increase in construction starts, up 50%. Some of these starts will be adding to peak spending well into 2025. Nonres Bldgs starts in the 2nd half 2022, averaged 67% higher than any other 6mo period in history. Starts fell 20% in the 1st half 2023 but still posted the 2nd highest 6mo average ever. After two years of outstanding growth, Nonres Bldgs starts close 2023 down 7%. Although 2023 is down 7%, that’s still by far the 2nd best year ever. The forecast for 2024 is +5%.
Manufacturing starts, the market with the largest movement, gained 120% from 2020 to 2023. Manufacturing projects can have a moderately long average duration because some of these are multi-billion$ projects and can have schedules that are 4 to 5 years.
Educational, Healthcare, Lodging and Public Buildings all had starts of 20% or more the last two years.
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. For 2023, Highway/Bridge and Power have the strongest gains. Total Non-building Starts for 2023 are up 16% and they were up 25% in 2022. These starts will help elevate spending through 2025. Non-building starts for 2024 are forecast up 8%.
Power starts are up 25% the last two years. Highway starts and Environmental Public Works are both up 33% the last two years and up 50% the last three years.
Starts data captures a share of the total market or only a portion of all construction spending, on average about 60% of all construction. The easiest way to understand this is to compare total annual construction starts to total annual spending. National starts in recent years about $800 billion/year, while spending in this period ranges from $1,300 billion/year to $1,500 billion/year. From this simple comparison we can see starts captures a share of about 60% of the total market. The actual share for each market varies from as low as 35% to as high as 70%. Before using starts data to forecast spending, starts here were first adjusted for market share.
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. If new construction starts in the year are greater than construction spending in the year, then for the following year starting backlog increases. It’s when new starts don’t replenish the amount of spending in the year that backlog declines.
80% of all nonresidential spending in any given year is from backlog and could be supported by projects that started last year or 2 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.
The table below, Forecast Starting Backlog, is model generated by Construction Analytics. Adjusted starts are spread over time to generate cash flow. A sum of spending each month/year, subtracted from start of year plus new starts provides Backlog.
Construction Backlog leading into 2024, in every sector, is at all-time high, in total up 46% from Jan 2020. For the years 2022 and 2023, backlog is up 11% and 12%. Reaching new highs in Backlog could mean contractors are comfortable adding some backlog, or it could mean not enough labor, subcontractors or suppliers to support advancing growth so quickly, so growth advances slower and more of the work is retained in backlog for longer, essentially dragging out the timeline, or it could be long term workload, 4yr.-6yr. long projects from new starts, such as Manufacturing, where a very large amount enters backlog and gets spent over 4-6yrs., so, although the monthly drawdowns reduce the amount remaining in backlog, it remains in backlog for a long time.
Residential backlog in 2024 is down 0.5%, but from such a previous high, essentially, starts are riding flat along the top. Starts are up 55% since Jan 2020.
Nonresidential Bldgs starting backlog for 2024 received a boost from all the starts in 2022 and 2023. Backlog is up 12% from 2023 and up 50% from Jan 2020.
Nonbuilding Infrastructure starting backlog is up 12% each of the last two years boosted by strong starts in 2022 and 2023. For 2024, backlog is up 40% from Jan 2020.
Manufacturing backlog increased nearly 300% from 2020-2024, from $117bil going into 2020 to $300bil beginning 2024. No other market has ever been close. Manufacturing was responsible for 60% of all the Nonres Bldgs spending growth in 2023. It was also responsible for 60% of the Backlog growth leading into 2024. Nonres Bldgs has a total 3.6 million jobs and has never increased by more than 150,000 jobs in one year. Manufacturing is 30% of all Nonres Bldgs spending, so assume 30% of Nonres Bldgs jobs. That’s 1.2million jobs supporting just Manufacturing projects. So Backlog of $300bil, at 5000 jobs per billion per year, would need 1,500,000 jobs for a year. With a 1,200,000 jobs share of the workforce, that backlog would provide support for 15 months. Of course, new starts add to support throughout the year, but the calculation of how long backlog would support that market segment is valuable.
Backlog at the beginning of the year or new starts within the year does not give an indication of what direction spending will take within the year. Backlog is increasing if new starts during the year is greater than spending during the year. An increase in backlog could immediately increase the level of monthly spending activity, or it could maintain a level rate of market activity, but spread over a longer duration. In this case, there is some of both in the forecast. It takes several years for all the starts in a year to be completed. Cash flow shows the spending over time.
Current Rate of Spending
The current seasonally adjusted annual rate (SAAR) of spending gives an indication of how spending will perform in the following year. As we begin 2024, the current rate of spending (SAAR) for Nonresidential Buildings in Q4’23 is $709bil., already 4.5% higher than the average for 2023 ($677bil). If spending stays at the current level and no additional growth occurs, Nonresidential Bldgs spending will finish 2024 up 4.5%. Spending would need to have more monthly declines than increases to finish the year up less than 4.5%. The current forecast shows a monthly SAAR rate of growth for Nonresidential Bldgs. averaging about 0.5%/mo in 2024, so we have a minimum, but we can expect 2024 total spending to rise considerably higher than the current rate.
Non-building Infrastructure current rate of spending is now 3.7% higher than the average for 2023, however the forecast is indicating steady growth of 1%/mo for all of 2024.
Residential current rate of spending is 2.4% above the 2023 average and is forecast to average an increase of just under 1%/mo for 2024.
2024 Construction Spending Forecast
Starts lead to spending, but that spending is spread out over time. Starts represent a contract award. Spending takes the amount of that contract award and spreads it out by a cash flow curve over the duration of the job. An average spending curve for the sum of nonresidential buildings is 20:50:30 over three years. Only about 20% of new starts gets spent in the year started. 50% gets spent in the next year and 30% in YR3/4. An average spending curve for Non-building Infrastructure is more like 15:30:30:20:5. The effect of new starts does not show up in spending immediately. For example: If 2024 posts an additional $100 billion in new starts for Infrastructure, only about $15 billion of that would get put-in-place in 2024. The cash flow schedule for that $100 bil of new starts would extend out over 3 to 5 years. Most of that $100 bil would get spent in 2025 and 2026.
Total Construction Spending $2,190 billion +10.7% over 2023.
Nonresidential Buildings $737 billion +8.8% over 2023.
Non-building Infrastructure $493 billion +15.8% over 2023.
Residential Buildings $960 billion +9.7% over 2023.
This forecast does not include a recession.
The largest increases to construction spending in 2023 are Manufacturing +$80bil, Highway +$20bil, Public Utilities (Sewage and Waste, Water Supply and Conservation-Rivers-Dams) +$15bil and Educational +$14bil.
Residential regains the top growth spot in 2024 with a forecast spending increase of +$68bil. Manufacturing is forecast to add +$32bil. Highway gains +$26bil, Power +$24bil and Educational gains +$15bil.
One big question is how did the forecast for Manufacturing increase so much since the beginning of 2023. Since January 2023, the starts forecast for 2023 increased by 35%. How much of that 35% is real growth in starts vs an increase in the capture rate of data gathering is yet to be determined, but has an impact of 2023-2024 spending. Also, starts for future years were 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.
As we begin the year, Manufacturing SAAR current rate of spending is already 8% higher than the average for 2023. The current rate of spending is increasing at an average of near 2%/month for the next 6 months, then slows or dips slightly for the remainder of the year, indicating total spending for 2024 will finish well above the current rate of 8%. I’m forecasting 16% growth for the year.
Highway SAAR rate of spending begins the year 6.5% higher than the average for 2023, with the current rate increasing at an average of 1%/month for all of 2024, indicating total spending for 2024 will finish well above the current rate of 6.5%. Starts have increased +15%/yr the last three years. My forecast is for 19% growth in 2024 spending.
Power SAAR rate of spending begins the year 4% higher than the average for 2023, with the current rate increasing at an average over 1%/month for 2024, indicating total spending for 2024 will finish much higher. My forecast is for 20% growth in 2024.
Public Utilities SAAR rate of spending begins the year 6% higher than the average for 2023, with the current rate increasing at an average over 1%/month for 2024. Public Works averaged +15%/yr new starts the last three years. My forecast is for 13% spending growth in 2024.
Residential regains the top spot in 2024 with a forecast spending increase of $68bil. Residential SAAR rate of spending in Q4’23 was up 2.5% over 2023, but December was up 5%. So we begin the year 2.5% to 5% higher than the average for 2023. The rate of spending is forecast to increase 1%/month for 6 months, then fall 0.5%/mo for H2 2024. My forecast is for 10% growth in 2024.
Educational SAAR rate of spending begins 2024 7% higher than the average for 2023, and the current rate is increasing at an average of 0.7%/month for 2024. My forecast is for 13% growth.
Inflation
Construction Inflation differs from other common types of inflation, i.e., Consumer Price Index. It must be accounted for in order to make reasonable calculations for business volume and past or future costs.
30-year average inflation rate for residential and nonresidential buildings is 3.7%. Excluding deflation in recession years 2008-2010, for nonresidential buildings is 4.2% and for residential is 4.6%.
Deflation is not likely. Only twice in 50 years have we experienced construction cost deflation, the recession years of 2009 and 2010. That was at a time when business volume dropped 33% and jobs fell 30%. During two years of the pandemic recession, volume reached a low down 8% and jobs dropped a total 14%.But we gained back far more jobs than volume. That means it now takes more jobs to put-in-pace volume of work. That increases inflation.
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 higher than general indices. 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. Even with that, a PPI Inputs index +20% for a material could be only a +5% final cost. 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.
Typically, when work volume decreases, the bidding environment gets more competitive. We can always expect some margin decline when there are fewer nonresidential projects to bid on, which typically results in sharper pencils. However, when labor or materials shortages develop or productivity declines, that causes inflation to increase. We can also expect cost increases due to project time extensions or potential overtime to meet a fixed end-date.
Current$ Spending, Inflation, Constant$ Volume
Volume = spending minus inflation. Spending includes inflation. Inflation adds nothing to the 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.
Lower inflation in 2024 means more of that spending is counting towards real volume growth. Expecting only 4% to 5% inflation for 2024, real volume growth could reach 6% for the first time since 2015. From 2012-2016, volume growth averaged 6%/yr. For the last four years, 2020-2023, 42% spending growth vs 37% inflation growth netted only 5% total real volume growth. Since 2017, volume growth averaged less than 1%/yr. Non-building Infrastructure volume could increase 10%+ in 2024.
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. 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.
When referencing Constant $ growth, remember the dollars for all years are reported here as 2019$. If the baseline year is changed to this year (divide all indices by this year’s index), the resulting comparison would be all years reported as 2024$. The dollars would all be greater, but the percent change would be the same. In this table, nominal spending is divided by the inflation INDEX for the year. You can also deduct the percent inflation from any individual year of spending to find inflation adjusted $ for that year alone, however that method would not allow comparing the adjusted dollars to any other year. A baseline year is necessary to compare dollars from any year to any other year.
Reference Inflation Data Construction Inflation 2024
Through December 2023, Total Construction Spending is up 40% for the four years 2020-2023, but, during that same period inflation increased 35%. After adjusting for 35% inflation, constant $ volume is up only 5%. So, while the current $ spending plot shows a four-year total increase of 40% in spending, the actual change in business volume is up only 5% and has just in the last few months returned to the pre-pandemic peak in Feb-Mar 2020.
Jobs are supported by growth in construction volume, spending minus inflation. If volume is declining, there is no support to increase jobs. Although total volume for 2023 is up 2.3%, Residential volume is down 9%, Nonresidential Bldgs volume is up 16% and Non-building volume is up 8%. Inflation was so high in 2021 and 2022 that it ate away most of the spending gains in those years.
Jobs vs Volume
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 annual 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. This plot shows Jobs and Volume growth closely match from 2011 to 2018. With few exceptions for recession periods, this pattern can be seen throughout the historical data.
What’s remarkable about the growth is this, since 2016, spending has increased 63%, volume after inflation increased 6% and jobs increased 19%. In the last 7 years, 2017-2023, jobs increased 2.5%/yr. Volume of work increased only 0.8%/yr. Volume and jobs should be moving together.
It takes about 5000 jobs to put-in-place $1 billion of volume in one year. It could easily vary from 4000 to 6000. So, an add of $100 billion+ in one year would need 500,000 new jobs. Jobs should track volume, not spending growth. Volume = spending minus inflation.
Normal construction jobs growth is about 250,000 jobs per year and maximum prior growth is about 400,000. From the table above, Nonresidential Bldgs and Non-building Infrastructure added $100bil of volume in 2023 and will add $60bil in 2024. The workload discussed above would theoretically require 500,000 new jobs in 2023 and 300,000 more in 2024. That’s an expansion of the industry workforce by 10% in two years, for just half the industry, in an industry that normally grows in total 3%/yr. This industry can’t grow that fast. This may have some impact if over-capacity growth results in a potential reduction or extension 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.
In the last 12 months, Dec’22 to Dec’23, Nonres Bldgs jobs are up 4%. Nonres Bldgs spending is up 23%, by far driven by Manufacturing, but after ~5.4% inflation, volume of nonres bldgs workload is up 16%. So, we have a 4% increase in jobs versus a 16% increase in volume.
The last year has shown a huge increase in the volume of nonres bldgs work, without an equal increase in jobs. Is this excess nonres bldgs jobs for the past three years now absorbing added workload, (a 4% increase in jobs but a 16% increase in volume), without collapsing the labor force or canceling the volume?
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.
For as long as I can remember, the construction industry has been complaining of jobs shortages. And yet, as shown in the data mentioned above, jobs have increased multiples times greater than volume of work. With an exception for recession years, (2007-2010 and 2020), jobs increase at a rate of 2.5% to 3% per year. The greatest disparity between jobs and volume occurred in late 2022, when jobs growth had already resumed normal pace, but volume of work was still reeling from the effects of new construction starts that were canceled dating back to late 2020-early 2021. Recent volume growth at a much faster rate than jobs growth is now closing the gap.
When jobs increase without an equal increase in the volume of work, productivity declines. This recent increase in volume and the projected increase in volume in 2024, several points stronger than jobs, will offset some of the disparity which has been negative for a long time.
 
Reference Inflation Data Construction Inflation 2024
Reference Article The Next Forecast Challenge
Reference Article Midyear ’23 Jobs Outlook
Reference Article  Reliability of Predicted Forecast Â
Reference Link to Web Dodge Construction News
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Below is a downloadable 24 page PDF of the complete 2024 Outlook
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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
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.
The Next Forecast Challenge
The next big challenge in construction forecasting is to determine, Will Nonres Bldgs spending increase without an equal increase in nonres bldgs jobs? If so, by how much?
At the onset of the Pandemic, nonres bldgs jobs dropped 16%. Jobs have since recovered to down only 1% vs Feb 2020. Spending (bottomed in Sep 2021) fell 17%, but is now up 15% over Feb 2020.
But the key to this comparison is inflation, which, when subtracted from spending gives real volume growth. Inflation adds only to spending, it adds nothing to volume of work.
Nonres Bldgs inflation was 2.4% in 2020, 8.2% in 2021 and 11.9% in 2022. Total Nonres Bldgs inflation from Feb 2020 to Mar 2023 is 26%.
Since the onset of the Pandemic, Nonres Bldgs spending is up 15% but after inflation volume is down 8%. During that time jobs are down 1%. That’s now over three years that jobs exceed volume of work. Let’s look at more recent data.
In the last 12 months, Mar’22 to Mar’23, nonres bldgs jobs are up 3.5%. Nonres Bldgs spending is up 21%, but after ~7% inflation, volume of nonres bldgs workload is up 14%. So, we have a 3.5% increase in jobs to accomodate a 14% 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 greater workload, (a 3.5% increase in jobs to accomodate a 14% increase in volume), without a cry of jobs shortages.
What’s the real magnitude of this difference in percent growth, a 10.5% increase in volume over jobs. Well that 10.5% increase in volume is $50 billion worth of construction put-in-place. Not delayed, not canceled, put-in-place. With no equal increase in jobs. So the existing jobs put this work in place. $50 billion in one year would normally require 250,000 jobs to put-in-place. Or by using overtime and working the existing workforce longer hours to get it done, the entire nonres bldgs workforce of 3.5 million would need to work 10 hour days 5 days a week to put that much extra work in place. Well, BLS reports hours worked changed by less than 1 hour/week.So, it wasn’t accomplished with added jobs and it wasn’t accomplished with overtime.
Some regular readers here could probably point back to a half dozen articles over the last few years in which I describe nonres bldgs volume levels had dropped but jobs had not. I mentioned before that existing jobs could and probably would absorb some of the growth. That could occur if there were a need to backfill volume to support the existing workforce.
The forecast for Nonresidential Buildings spending in 2023 is +20%. After 6% inflation, volume is forecast +14%. Jobs will not increase by 14%. Jobs have never increased more than 5% and normal is 3.5%. A 14% increase is equivalent to 500,000 jobs, just to support the growth in nonres bldgs. 500,000 jobs is double the normal annual rate of growth for all construction jobs. Nonres Bldgs is is only 33% of all construction
So the questions for the forecaster are these, 1) do we break the mold for construction jobs growth and add half a million jobs, and exceed all known indicators on construction jobs growth?, 2) Will volume vs jobs grow similar to the previous year, volume up 14% and jobs up 3.5%?, or 3) Does nonres bldgs volume growth slow down to a rate of growth more in-line with jobs growth?
I’m heavily leaning to #2, volume will exceed jobs growth. Some of the added work in the near future will be absorbed by the current workforce, but the workforce has already absorbed a great deal in the past year. Also I do think I’m partly leaning towards #3, volume growth will slow to less than currently predicted, although not nearly to the low level of historical jobs growth. I don’t expect jobs growth to exceed historical maximum of 5% annually, 175,000 nonres bldgs jobs. I do expect volume growth will exceed jobs growth, but by much less than in this past year. I do expect to extend the forecast spending out to a further date.
2023 Construction Volume Growth
Construction volume is spending minus inflation. If we want to know whether business is growing, we need to look at spending without inflation, or volume of business.
Volume is what dictates the need for jobs.
If an apple this yr cost 50c, and last yr it cost 40c, the revenue changing hands has gone up 10c or 25%. Volume of business changing hands has not changed, it’s still only one apple.
Inflation adds nothing to the volume of business.
For 2021 and 2022, total construction spending increased 8.5% and 10.6%. But, inflation was 11% and 15%. In both years, inflation was higher than spending. First, subtract inflation from the total spending. That’s gives the dollar amounts for the Spending w/o Inflation Current $ table. Then volume growth can be compared year to year. Volume growth calculation is Vol this yr/Vol last yr, but first, it is dependent on each individual year spending minus inflation.
Volume each individual year is calculated as spending minus inflation. But growth in Volume from yr to yr is Vol this yr/Vol last yr., so is often different than growth in spending.
The volume of construction work completed in 2021 ($1.467tril) is 11% (avg inflation 2021 less than 2021 spending ($1.626tril)
The volume of work completed in 2022 ($1.574tril) is 15% less than 2022 spending ($1.798tril)
So, while Spending growth is 1.798/1.626 = 10.6%, Volume growth is 1.572/1.467= 7.2%.
The table above shows Current Spending and Current Volume. It is not indexed to a common point in time. The table below is Constant Spending which represents Volume indexed to a point in time, in this case 2019. The percent change year to year is what is plotted in charts below.
All the plots below show spending, volume and jobs. Current $ in 2010 are not the same as current $ in 2023, so all $ are indexed to the same constant point in time, constant $, so they can be compared. Constant $ then shows the cumulative growth from that point in time.
This plot shows the cumulative change in Total All Spending, Volume and Jobs since Jan. 1, 2020. From 2019 to 2022, Spending is up 29%, Volume is up only 18% and Jobs are up only about 2%. Below are plots that show the differences in jobs and volume growth for each sector.
Residential 2022 spending is = $900bil. Inflation is 15%. Without inflation, residential volume is up $780bil. Residential spending in 2023 is forecast at $850bil. If residential inflation for 2023 comes in low, say at 4%, then w/o inflation residential volume in 2023 would be $820bil. 2023 spending would be 6% lower than 2022, but volume is 5% higher. All due to the huge bite that 15% inflation took out of 2022 spending.
Recently, residential jobs have been holding relatively close to volume. In 2019 and 2022 they were even. That is not the case for the rest of construction.
Nonresidential Buildings and Non-building Infrastructure constant $ volume since Jan. 2020 is down about 15%. Note how jobs dropped about 5%. This, not residential, is what is driving the deficit of volume shown in the Total All plot above. The major growth forecast in Nonres Bldgs and Non-bldg in 2023 and 2024 should help offset some of the difference.
Both Nonres Bldgs and Non-bldg have (or had) a very large number of jobs not supported by volume. This could be contractors holding on to their labor in a slack period so they have the labor when needed. The volume growth in these sectors would indicate a needed jobs growth that far exceeds the ability of the construction industry to add jobs. Those jobs could potentially absorb a lot of the anticipated growth in the spending forecast.
The current excess of jobs could absorb a lot of the volume growth. In 2020-2021, jobs increased about 2% but volume of work decreased 20% to 25%. These should move in tandem, not in opposition. The data counters the narrative of jobs shortages. In these two sectors, jobs had reached the highest ever excess jobs over volume. This does not address the alternative, skills shortages. But the data seems to indicate there could be a lot of bodies that could take on a large amount of growth in the volume of work.
From Q4’21 to Q1’23, Nonres Bldgs volume increased 25%, $100 billion. Nonres Bldgs jobs increased 4%, 140,000 jobs. A $100 billion add in one year is equivalent need to 500,000 jobs, and yet the workforce added only 140,000 jobs. The rest of the work was absorbed by the current workforce. I expect the volume growth over the next two years will increase much faster than jobs growth. That would be very good for the construction industry.
The volume growth in these sectors would indicate a needed jobs growth that far exceeds the ability of the construction industry to add jobs. The most jobs ever added in the last 50 years is just over 400,000. The average jobs added in the last 12 years is 225,000 (excluding the 230k lost in 2020) and the most in one year in the last 12 years is 320,000. It’s reasonable to assume the industry can add 300,000 to 400,000 jobs a year.
We either accept that we can’t add enough jobs to support increasing the workload by that much or we can’t add the anticipated workload in the forecast.
If we accept the forecast volume growth over the next two years, we simply could not add enough jobs in one or even two years to accommodate all the volume of work forecast. Both the Nonres Bldgs and Non-bldg plots above show a steep incline in the volume of work added, but not nearly as steep an incline in the number of jobs added. This can be correct only if a large percentage of the work added is absorbed by the current workforce. The alternative is that much work can’t be added that fast.
2023 volume growth is $250 billion, mostly nonresidential buildings. It takes 5000 jobs a year to put-in-place $1 billion. Forecasting that growth is put-in-place over 2 to 3 years, that’s about $100 billion/year. That’s 500,000 jobs for 2 to 3 years, which means there is too much work added in a year. My current forecast does not reduce for this, yet.
An extension of this discussion is here The Next Forecast Challenge
Infrastructure Construction Expansion – Not So Fast
Only once in 25 years have heavy engineering construction jobs increased more than 5% in one year (7.5% in 2018, 72,000 new jobs). Most of the time jobs growth is under 4% (40,000 jobs). Average growth the last 12 years (see notes below) is near 3% or 30,000 jobs per year.
U. S. Bureau of Labor Statistics (BLS) national data shows there are currently 1,078,000 Heavy Engineering jobs. In 2019 there were 1,084,000. There was a loss of nearly 100,000 heavy engineering jobs in early 2020 due to the onset of the pandemic. In 2022, heavy engineering jobs have been nearly constant, just above 1,070,000 the entire year.
Highway/Bridge comprises approximately 30% of all heavy engineering spending, so supports about 300,000 jobs per year.
The current forecast for new construction starts has increased the forecast for spending growth dramatically above previous years. Both starts and spending statistics give an indication of what to expect in the jobs situation. The spending forecast is indicating a need for a large increase in jobs to support the new work. Spending (also consider inflation) is the critical value that determines the need for jobs. Without sufficient jobs, the spending cannot take place. If jobs do not increase to support the forecast spending, the timeline for the spending very likely will get extended.
It takes 400 jobs per year to put in place $100 million of heavy engineering construction in the year. (Some types of work would take 500 jobs, but I’ll work with 400 here). A construction program that hypothetically adds $1 billion of new construction starts in a year would see that work put in place (for Highway work) approximately over the next few years at a ratio similar to a 15:30:35:20 schedule, $150 million the 1st year, $300 million the 2nd year, $350 million the 3rd year and $200 million in the 4th and 5th years. To support $150 million growth in the 1st year would require 600 new jobs. To support an increase of $1 billion in spending in one year would require 4,000 new jobs.
How will the average growth in jobs affect the growth in new starts and forecast spending?
Modeling the new starts forecast, based on the spending schedule outlined above, projects the spending forecast for Highway/Bridge work over the next few years will increase by $15 billion/year. This would indicate a need to add 15 x 4,000 = 60,000 new highway construction jobs each year in 2023, 2024 and 2025. But the entire heavy engineering jobs pool has increased by that amount only once in 25 years and average growth for all heavy engineering jobs is only 20,000 jobs/year. If we take out 2020, when jobs plummeted, the average growth from 2011 to 2022 was 30,000 heavy engineering jobs per year. Keep in mind, highway is only 30% (6,000 to 9,000) of those averages. This indicates it will be very difficult to support spending growth of this magnitude. While the starts projections and resulting spending forecast indicate rapid growth, this market sector has never experienced spending or jobs growth this fast and it is likely that growth will be slower than indicated.
Some of this added work will be absorbed into the existing workforce, backfilling a large deficit in business volume. See this short post Construction Spending – Volume – Jobs Since the Pandemic, nonbuilding construction volume (spending minus inflation) is down 20%, but nonbuilding jobs are down only 1.5%. Compared to 2019, nonresidential construction has an 18% business volume deficit. In other words, Nonres construction in 2022 now has 18% more jobs per volume of work put-in-place than it did in 2019. Total all construction business volume in that period is down 10% while jobs are up 1.5%.
Aside from backfilling volume of work, this shows a shortfall of workers that would likely be needed to support the increased workload. The labor force is insufficient to accommodate that large an annual increase in spending. This could result in one or more of these outcomes: either the workforce must somehow increase faster, or the project spending could slow and duration would get extended, which is more likely.
Jobs shortfall to support 2022-2026 spending identifies unsupported need. If jobs cannot be filled, annual spending will be lower and construction timeline would get extended.
Currently, national construction unemployment rate is near or under 4%. That is an extremely tight jobs market, not an easy growth situation. Typically, when unemployment is in the 6% to 8% range there are workers on the sidelines ready to go right back to work. Unemployment seldom falls below 5%. The current jobs situation and unemployment rate seems to indicate there are few workers ready and available to support an immediate increased workload. This adds to the difficulty of expanding the workforce at a rapid rate.
In this analysis, the potential rate of jobs growth and the current unemployment rate both suggest that the projected rate of spending growth would not be supported. A slower rate of spending leads back to reducing starts.
See Also Burning Questions – Recession, Labor, Infrastructure
Construction Spending – Volume – Jobs
12-3-22
This plot is not showing good performance. Volume and jobs should be moving directly in tandem. When inflation is very high, spending climbs rapidly. But most of the climb is just due to inflation. To find out what’s really going on we need to look at business volume. Take out the inflation $.
Business volume = Spending minus Inflation. Inflation adds nothing to business volume. Inflation adds only to the amount of revenue that changes hands.
In 2022, residential spending is up 16%. Sounds great, homebuilder’s revenues are up 16%. It’s great until you note that residential inflation for 2022 is 15%. Real residential business volume for 2022 increased only 1%.
Since Jan.2020 spending is up 20%. Revenues are up 20%. It’s pretty hard to not think you need additional staff to support 20% growth in revenues. But inflation is 30%. Take out the inflation dollars and we find that volume is DOWN 10%. Well, during that time, jobs increased 1 to 2%. And yet, business volume is down 10%. That’s a massive 11%-12% loss in productivity. With labor being about 35% of the total cost of a job, that’s added about 4% to total inflation.
I recently read an article that stated (attributed to Assoc. Bldrs. & Contractors) that the construction industry needs to add 1,000,000 jobs over the next two years. Here’s why that won’t happen:
1) The construction industry has never added more than 440,000 jobs in one year. It’s only gone over 400,000 four times in 50 years, the last time 2005, and never two years in a row. The most construction jobs added in a year since 2011 is 360,000 in 2014. The average growth rate from 2011 thru 2019, and now also in 2022, is 230,000 jobs per year. The most jobs added in any two consecutive years is just over 700,000 in 1998-99 and 2005-06. So, the construction industry may not have the capacity to grow 1,000,000 jobs even in two years.
2) Since the Pandemic, nonresidential construction volume is down 20%, but nonresidential jobs are down only 1.5%. Compared to 2019, nonresidential construction has an 18% business volume deficit. In other words, Nonres construction in 2022 now has 18% more jobs per volume of work put-in-place than it did in 2019. Total ALL construction business volume in that period is down 10% while jobs are up 1.5%.
3) Inflation is playing a key roll here. In 2022, construction spending is increasing $160 billion or 10%. But inflation is 13%. Real total construction business volume in 2022 is down 3%. Jobs are up. For 2023, spending is forecast to gain $80 billion, 4.6%, but after inflation volume will be down 1%. 2023 numbers are driven down by residential.
4) In 2023, nonresidential volume increases $35 to $40 billion. Residential volume drops $50 billion. It takes 4000 to 5000 jobs to put-in-place $1 billion of volume in one year. Nonbuilding and nonresidential buildings growth of $40 billion would need 160,000 to 200,000 new jobs. Some small amount of that will come from the drop in residential. But, go back and read #2 again.
Since Jan 2020, the construction industry as a whole has nearly +175,000 (+2%) more workers to put-in-place -$175 billion (-10%) LESS volume. That’s a huge loss to productivity that may take years to recover, if ever.
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 Jobs and Inflation
Construction jobs through August 2022 increased to 1.1% above the pre-pandemic high in Q1’20. Factoring in hours worked, we find that is reduced slightly to show jobs x hours worked for August 2022 is 0.4% lower than the peak in Q1 2020. Most anyone would say jobs have returned to the pre-pandemic high.
Construction spending through July is 14.3% higher than the pre-pandemic high in Q1’20. BUT INFLATION through July is 23% higher than pre-pandemic Q1’20. Therefore real construction volume (spending minus inflation) is currently 7% BELOW the pre-pandemic high in Q1 2020.
Jobs are up, but volume is down.
So, when you read that jobs are back to pre-pandemic levels, maybe that’s not as great as you might think. Sure more people are back to work, but has the volume of work needed to support those jobs increased sufficiently?
Inflation hides a lot of reality. We now produce 7% less volume of work put-in-place with 1.1% more workers putting in 0.4% less hours than before. That’s a huge construction productivity loss, down 6.6% in the last 30 months. Where does that productivity loss show up in the data?
Here’s the plot of actual and forecast CONSTRUCTION SPENDING. Compare this to the next plot.
Here’s the plot of actual and forecast CONSTRUCTION SPENDING ADJUSTED FOR INLATION.
Notice, Residential volume is up 11% since Q1 2020, but nonresidential buildings volume is still down 23% and non-building volume is down 18%.
Let’s say construction labor is 35% of total construction cost. If wages go up by 5%, then total cost goes up by 5%x35% = 1.75%. Well, if productivity declines by 6.6%, labor cost goes UP by 6.6%x35% = 2.3%.
That’s the inflation cost. Here’s a look Behind the Headlines. These two plots show the number of jobs required to put-in-place $1 billion of volume (inflation adjusted spending) or the inverse, the amount of volume put-in-place by one job in one year.
It’s great that jobs are coming back, but don’t overlook the cost that has added to inflation. Don’t expect to see a lot of improvement over the next 12 months. In fact, if jobs continue to grow at the current rate (or any rate for that matter), this time next year the imbalance is worse.
Construction Analytics 