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Construction Data Briefs APR 2023
Construction is booming. Nonresidential buildings is leading growth. For the first two months of the year, total construction spending year-to-date (ytd) is up 5.9%, but nonresidential buildings spending is up 23% ytd, the fastest rate of nonres bldgs growth in over 20 years. Nonresidential buildings annual rate of spending has increased 19% in the last six months. Nonbuilding spending ytd is up 8%. Nonbuilding annual rate of spending increased 10% in the last four months. Residential spending peaked in March 2022. Since then the annual rate of residential spending has dropped 11%.
Total Construction Spending in 2023 is now forecast to reach $1,894 billion, an increase of 5.3% over 2022.
Nonresidential Buildings spending in 2023 is now forecast at $629 billion, an increase of 20.3% over 2022.
STARTS
The rate of construction spending in 2023 will be influenced predominantly by a 40% increase in new nonresidential building starts in 2022. In recent years, new nonres bldgs starts averaged $300 billion/year. In the 2nd half of 2022, starts averaged over $500 billion/year. Many of those projects will have peak spending in 2023. Some will occur in 2024.
Residential construction (Dodge) starts posted the five highest months ever all in the 1st 6 months of 2022. In the second half of 2022, residential starts fell 15%. In Jan and Feb 2023, starts dropped another 20% below 2nd half 2022. Starts are now down 25% in 12 months.
Nonresidential Bldgs starts in 2022 posted the largest ever one-year increase in new nonresidential buildings construction starts, up 40%. Starts were also up 15% in 2021. Nonres Bldgs new starts in the 2nd half 2022, averaged 67% higher than any other 6mo period in history.
Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150%. Office is up 36% (datacenters), Healthcare up 17%, Comm/Rtl up 23% (warehouses).
Non-building starts increased more than 100% in July 2022. The 2nd half 2022 was up 50% over 1st half 2022. Starts for 2023 are forecast up 15%. For 2022, Highway up 25%, Transportation up 45%, Power up 30% and Public Works up 15%.
SPENDING FORECAST
Construction Spending through February 2023 is up 5.9% ytd. Spending is forecast to finish 2023 up 5.3%.
While residential falls back nearly 7% in 2023, Nonresidential buildings is leading with a forecast of 20% spending growth.
Total construction spending for 2023 is on track to increase +5.3%. Residential -6.7%, Nonres Bldgs +20.3%, Nonbldg +13.5%.
SPENDING BY SECTOR CURRENT $ AND INFLATION ADJUSTED CONSTANT $
In 2023, it’s Nonresidential Buildings leading growth. In 2024, it will be Nonbuilding Infrastructure leading spending growth. Both are expected to grow greater than the inflation index.
See also Construction Spending Outlook – Feb 2023
Current $ Spending, Inflation and Volume SEE Construction Inflation 2023
Inflation adjusted volume is spending minus inflation, or to be more accurate, spending divided by (1+inflation). The following table shows spending, inflation and volume (spending without inflation) for each year. All $ are current to the year stated. This table shows that inflation adds nothing to volume growth. All values in this table are current to the year stated. The values in this table are not indexed to a constant value year. This is an attempt to show that business volume in any given year is not as high as spending would indicate. When inflation is positive, volume is always less than spending by the amount attributed to inflation.
Spending during the year is the value of business volume plus the inflation on that volume. When inflation is 12%, volume plus 12% = total spending. Revenue is generally measured by spending put-in-place during the year. In 2022, Nonresidential buildings business volume was 12.2% less than spending, or less than revenue. Residential volume was 15.7% less then spending.
SPENDING TOTAL CURRENT $ AND INFLATION ADJUSTED CONSTANT $
Overall Construction Spending is up 22% in the 36 months since the onset of the pandemic, but, during that same period inflation increased 31%. After adjusting for 31% inflation, constant $ volume is down 7%. So, while the plot on the left shows three years of increases in spending, the actual change in business volume is still down and has not yet returned to the pre-pandemic peak in Feb-Mar 2020.
NONRESIDENTIAL SPENDING (CURRENT $) AND VOLUME (CONSTANT $)
Nonresidential Buildings spending in 2023 is forecast at $629 billion, an increase of 20.3%, or $100 billion and add another $50 billion in 2024.
In 2022 we realized the largest ever one-year increase in new nonresidential buildings construction starts, up 40%. Starts were also up 15% in 2021.
The AIA Consensus Construction Forecast, December 2022 predicts only a 5.8% increase in spending for nonresidential buildings in 2023. My beginning of year forecast for comparison was 15.8%. My current forecast is +20.3%.
We began the year with record new starts indicating an increasing spending rate. The monthly rate of spending is up 12 of the last 14 months, has increased for 6 consecutive months and is up 20% in the last 6 months. The rate of spending is predicted to increase 10 out of 12 months in 2023, a total increase of 11% over the year. Barring any unforeseen negative occurrence, the trajectory in the rate of spending is increasing.
Year-to-date nonresidential buildings spending for Jan+Feb is up 23%. This is driven by Manufacturing, up 53% ytd, but also supported by Lodging up 38% ytd and Commercial/Retail up 23% ytd. Every nonresidential building market except Educational (up only 8%) is up greater than 10% ytd.
Nonresidential buildings spending fell 17% from March 2020 to Sept 2021, then increased 36% from Sept 2021 to Feb 2023. Currently, as of Feb 2023, spending is 14% higher than the pre-pandemic peak in Feb 2020. But nonresidential buildings inflation over that same 36 months increased 26%. Business volume in constant $ actually fell 25% from Feb 2020 to Sept 2021, and hit a secondary low in mid-2022. Since then, the actual change in business volume has increased 18%, but that still leaves volume nearly 10% lower than the pre-pandemic high.
Non-building Infrastructure spending for 2023-24 is forecast up 25%, up $50 billion/year for two years. Non-building Infrastructure will post the 1st year of sizable gains since 2019, forecast at $415bil, up 13.5% in 2023. In 2022, Highway and Public Utilities posted strong gains of 9.1% and 16.6%, but those gains were offset by a 8.7% decline in Power. For 2023, Highway and Transportation recorded the strongest starts in five years. All markets post spending gains in 2023, with Highway up 26%, Transportation up 9% and Public Utilities up 8%.
Non-building Infrastructure spending is up 4% in 36 months since Feb 2020. After adjusting for 26% inflation, constant business volume is down 17%.
RESIDENTIAL SPENDING SF-MF-RENO CURRENT $ AND CONSTANT $
Residential starts are forecast down or flat in 2022 and 2023. Spending grew 44% in the last 2yrs, but inflation was 30% of that 44%. With no growth in starts forecast for 22-23, spending will struggle to keep up with inflation. Residential spending is forecast to fall 7% in 2023. Most of the decline is single family. Single family is down a total of 23% over 10 consecutive months. Multifamily is up 22% over 13 consecutive months. Renovations gained 25% in 2022 but spending varies +/- 10% throughout the year. Midyear there is potential for 6 consecutive down months in residential spending.
DOES VOLUME OF WORK SUPPORT JOBS GROWTH? or, Can jobs growth support volume of work?
Jobs should track volume, not spending growth. Volume = spending minus inflation. Volume is down, although now increasing, while jobs are up. Nonres Bldgs volume, in constant $, fell 25% from Feb 2020 to Sept 2021, and hit a secondary low in mid-2022. Since then, the actual change in nonres bldgs volume has increased 18%. Yet nonres bldgs jobs increased only 3.5%. That still leaves volume nearly 10% lower than the pre-pandemic high. If the same production levels ($ put-in-place per worker) as 2019 were to be regained, theoretically, nonresidential volume would need to increase 10% with no increase in nonresidential jobs. For now, productivity is well below that of 2019.
Nonresidential Buildings spending in 2023 is forecast at $629 billion, an increase of 20.3%, or $100 billion and another $50 billion in 2024. Non-building Infrastructure spending for 2023-24 is forecast up 25%, up $50 billion/year each year.
This growth amounts to an increase of $150 billion in 2023 and $100 billion in 2024. It takes 5000 jobs to put-in-place $1 billion. So $100 billion in 2024 would need 500,000 new jobs. 2023 would need 750,000 new jobs.
If we were to grow the labor force to meet the newly identified workload added from new starts, we would need to double the prior maximum rate of construction jobs growth. Normal growth is about 250,000 jobs per year and maximum prior growth is about 400,000. The workload discussed above would require 750,000 + 500,000 new jobs back to back. That’s an expansion of the industry by 15%, in an industry that normally grows 3%/yr. This industry can’t grow that fast. (Which means I need to account for over-capacity growth as a potential reduction in future forecast. You can’t increase spending that fast if you can’t expand the industry that fast).
4-16-23 update- Everything forecast above is predicated on the normal cash flow of forecast new starts. As of yet, this forecast has not been reduced to reflect the inability of the industry to expand jobs fast enough to absorb the volume of spending generated from forecast starts. Whether new starts get canceled or delayed, spending needs to be reduced annually for at least the next two years simply because jobs cannot increase fast enough to put-in-place the forecast spending. This impediment needs to be accounted for and could reduce overall construction spending forecast by approximately $40-$60 billion in 2023 and $25-$40 billion in 2024. The most likely markets where a reduction would occur are Manufacturing, Highway, Commercial/Retail and Office.
SEE more discussion on Volume and Jobs
here 2023 Construction Volume Growth
and here Infrastructure Construction Expansion – Not So Fast
2023 Construction Volume Growth
Construction volume is spending without 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%.
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.
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 25%. Note how jobs dropped less than 10%. 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 a very large number of jobs currently not supported by volume. This could be contractors holding on to their labor in a slack period so they have the labor when needed. Those jobs could potentially absorb a lot of the anticipated growth in the spending forecast. 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 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
Construction Spending Outlook – Feb 2023
2-2-23
Total construction spending in 2023 will increase only 4.2% over 2022. Nonresidential Buildings will lead construction spending in 2023 with a forecast gain of 18%.
The last two years, 2021 and 2022, total spending increased 8.5% and 10%. However, inflation in 2021 was 11% and in 2022 was 15%, both higher than spending. Real construction volume for the year is spending without the inflation. The volume of work completed in 2021 is 11% less than 2021 spending and in 2022 is 15% less than the total of 2022 spending.
The rate of construction spending in 2023 will be influenced predominantly by a 38% increase in new nonresidential building starts in 2022. In fact, even more meaningful, Nonres Bldgs new starts, in 2nd half 2022, averaged 68% higher than any other 6mo period in history. In recent years, new starts averaged $300 billion/year. In the 2nd half of 2022, starts averaged over $500 billion/year. Many of the projects peak spending will occur in 2023. Some will occur in 2024. Total spending forecast for Nonres Bldgs in 2023 is $616bil, an increase of 18.5% over 2022.
Growth in Manufacturing construction starts for 2022 far surpasses growth in any other market, up over 150%. Total new starts for the past 2 years is up over 400%. It will take at least a year to determine how much of that growth is an increase in total new construction and how much is an increase in capture of data in the starts survey.
Non-building starts for 2022-23 are forecast up 50%. Spending 2023-24 is forecast up 23%.
Non-building Infrastructure will post the 1st year of sizable gains since 2019, forecast at $400bil, up 9.6% in 2023. In 2022, Highway and Public Utilities posted strong gains of 9.0% and 16.5%, but those gains were offset by a 9.0% decline in Power. For 2023, Highway and Transportation recorded the strongest starts in five years. All markets post spending gains, with Highway up 12.0%, Transportation up 15.0% and Public Utilities up 11.5%.
See this discussion on Infrastructure and Jobs here
Infrastructure Constr Expansion – Not So Fast
Residential starts in 2021 were up +21% to what was then a new high. Starts peaked in the 1st half 2022 then started a decline in 2nd half 2022. By Q4’22, the rate of new starts dropped by 20%. Starts are forecast down 2% in 2023.
After three years of gains totaling 64%, expect residential spending to decline 6% in 2023. Single Family (47% of rsdn) spending peaked in April and since is down 20% in eight consecutive months. Multi-family (15% of rsdn) is up 11 consecutive months, now up 19% from January 2022. Reno/Rpr (38% of all rsdn) is up 25% for the year, but in the last five months, the rate of spending has fallen 15%. Only multi-family is currently trending up. 75% of all gains in multi-family occurred in the 4th quarter.
For the past 3 years, 2020-2022, Reno/Repair construction spending has gone up 1.26 x 1.16 x 1.25 = 1.8x, or 80%. Spending is currently down 17% from the peak in 4 of the last 5 mo. If the SAAR were to stall where it’s at now for the rest of 2023, spending will be down 10% for the year and will still be up 1.65x over last 4 years. Sure, it’s down, but it’s still high.
Residential spending grew 44% in the last 2yrs, but inflation was 30% of that 44%.
The annual rate of spending in all Nonresidential Buildings markets increased from Q1 to Q4 2022 and also Q4 spending in every market was higher than the average for 2022. Heading into 2023, nonresidential buildings markets start out the year with the annual rate of spending already 8% higher than the average 2022, and the trend has been up. The annual avg is usually much higher than Jan of the year, so I’d expect 2023 to come in higher. Although there are a few moderate dips in spending in some markets during the year, every market adds growth in 2023.
NOTE: The Census spending release on 2-1-23 is the 1st release to capture Dec data and therefore all months in 2022. The 3-1-23 release will revise both Dec and Nov. The 4-1-23 release will revise Dec. And the 7-1-23 release will revise any/all months needing further revision in both 2021 and 2022, sometimes with hefty changes. Historically, revisions are predominantly UP.
See Behind The Spending Forecasts
for a table showing the annual rate of spending for each market in the 4th qtr compared to the 2022 average. That’s the rate of spending starting out 2023.
Starting out the year with (Dec’22) an annual rate of spending already averaging 8% greater than 2022, coupled with 38% growth in new starts in 2022, much of which will be spent in 2023, produces the strongest year of growth in nonresidential buildings construction spending since 2007.
3-1-23 Surprises in the Census Construction Spending for Jan.
Nonres Bldgs January 2023 spending begins the year at a rate up 16% vs avg 2022 and up 23% YTD vs Jan 2022. Just one month ago the Dec. rate of nonres bldgs spending was only 8% higher than the average of 2022. This is Nonres Bldgs construction spending best start to the year since my records back to 2001. All indications are spending will increase throughout the year. I had forecast Mnfg in 2023 up 35% and total Nonres Bldgs up 18%. Now I have Mnfg up 40% and Total Nonres Bldgs up 20%.
If spending continues to increase at even a moderate pace, we could see the year end with Mnfg spending up 45% and total Nonres Bldgs spending up 25%.
- Mnfg starts Jan +54% ytd and +33% vs avg 2022.
- Comm/Rtl starts Jan +23% ytd and +18% vs avg 2022.
- Lodging starts Jan +42% ytd and +18% vs avg 2022.
- RSDN starts Jan -6% ytd and -5% vs avg 2022.
- Highway begins 2023 +16% ytd and +8% vs avg 2022.
- Power begins 2023 -5% ytd and +3% vs avg 2022.
- Transportation begins 2023 +10% ytd and +14% vs avg 2022.
Part of the Mnfg +54% can be explained due to the very low Jan’22. That evens out in Q4, when 2022 inflation jumped, so 2023 comparisons won’t be as high.
Below, the enlarged scale gives a better look at nonresidential Bldgs spending.
To fully understand the forecast it is necessary to discuss the impact of inflation. Construction spending includes inflation. Inflation adds nothing to business volume. Spending minus inflation gives volume. Growth, or decline, in business volume measures the actual activity growth in the construction industry. Spending measures the amount of revenue that exchanged hands to make it happen.
2-6-23 Current and predicted Inflation updated to Q4’22
- 2020 Rsdn Inflation 4.6%, Nonres Bldgs 2.4%, Nonbldg Infra -0.3%
- 2021 Rsdn Inflation 13.9%, Nonres Bldgs 7.6%, Nonbldg Infra 7.9%
- 2022 Rsdn Inflation 15.7%, Nonres Bldgs 12.3%, Nonbldg Infra 13.8%
- 2023 Rsdn Inflation 1.7%, Nonres Bldgs 4.2%, Nonbldg Infra 4.3%
Although input costs have been dropping and final demand (Nonres Bldgs) increases have been slowing, 2023 demand for nonresidential construction is going to post the largest annual spending increase ever recorded. This could reverse the trend in Nonres pricing and keep inflation higher for Nonres Bldgs.
Inflation adjusted volume is spending minus inflation. Volume of work (spending minus inflation) is what drives the need for jobs.
- Total volume for 2021 fell 1.9%, Rsdn +10%, Nonres Bldgs -13%, Nonbldg -8%.
- Total volume for 2022 fell 2.3%, Rsdn -1%, Nonres Bldgs +1%, Nonbldg -9%.
- Total volume forecast 2023 is flat at 0%, Rsdn -10%, Nonres Bldgs +13%, Nonbldg +4%.
Because 2022 inflation was so high (12% to 15%), the adjustment to 2022 spending resulted in much lower volume. In 2023, spending is forecast up 4.2% (compared to last year spending) and forecast inflation is 2% to 5%. 2023 inflation reduces spending far less than what occurred in 2022. Volume gets compared to volume the previous year. Therefore volume in 2023 shows an unusually large increase compared to volume in 2022.
SEE Construction Inflation 2023
for the details of inflation costs, but here are plots of the same information as the two plots above, only difference being the plots above are Current$, dollars as reported in the current year as reported by Census, and the plots below are constant$, inflation $ has been removed. The plots below actually measure the real growth from year to year. For example, while the plot above shows residential growth in spending increased from $600 billion in Q1 2020, to $900 billion in 2022, the plot below shows most of that was inflation and after removing inflation, residential construction did increase in early 2022 but by Q1 2023 has dropped back to the same level it was at in Q1 2020.
Below, the enlarged scale gives a better look at nonresidential Bldgs volume.
Recent construction annual rate of spending is only 17% higher than March 2020, but overall total construction spending is up 30% for 2020-21-22. In that three year period there was 32% inflation, half of that in 2022. So, all of the 30% spending gain is inflation, there is no gain, (a slight drop of -2%) in volume for that three years. Residential spending increased more than 60% with rsdn inflation near 40%, so rsdn volume increased 20%. Rsdn jobs growth is near even on track with volume, but Nonres and Nonbldg jobs did not fall when volume dropped.Nonresidential had 10% volume decline in 2021. Nonres now has a volume deficit vs jobs, compared to at the end of 2019.
For a discussion of inflation effects on jobs growth visit this link where this chart will be discussed.
SEE Construction Spending – Volume – Jobs
Construction Year-End Spending Forecast Dec’22
A few brief comments. More comments to follow
See also Construction Briefs Nov’22
With only one month to go and eleven months in the year-to-date spending, we should see very little variance from the Forecast for 2022, which is expected to finish up 10.1% at $1,791 billion. Residential spending will finish up 13.4% even though it’s posted declines in six of the last eight months and is down 13% since March. Nonresidential Buildings spending, expected to finish up 10.9%, is being driven by Commercial Retail (up 20%, in this case Warehouses) and Manufacturing, which will finish the year up over 35%. Non-building Infrastructure finishes the year up only 1.9% due to a large drop off in Power spending. Highway and Public Utilities helped offset some of the Power decline.
Total construction spending for 2023 is forecast to increase +5.1%. Residential -2%, Nonres Bldgs +15%, Nonbldg +8%.
Some high $ items: Comm/Rtl +16%, Manufacturing +35%, Highway +11%, Transportation +16%, Pub Utilities +12%.
Residential starts in 2021 were up +21% to a lofty 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, residential spending struggles to keep up with inflation. Residential spending will post a decrease of 2% in 2023. If inflation is 5%, that’s an 7% loss of business volume. Midyear there is potential for 6 consecutive down months.
Nonres Bldgs new starts last 2yrs (2021-2022) are up 50%. Spending next 2yrs is forecast up 20%.
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. October starts added another 9% over Sept., taking over the 3rd best spot. Even though November dropped 25% from Oct., Nov. starts are still higher than the 1st half 2022 average.
Construction starts for Nonresidential Bldgs posted each of the last 4 months thru October higher than any months ever before. The avg of last 4 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. Spending for Manufacturing Bldgs is expected to increase more than 30% in 2023. This seems high after already increasing 35% in 2022, but when taking into consideration that the expected spending for 2023 is only 15% higher than where we stand already in Q4 2022, it seems much more reasonable.
Backlog as we begin 2023 is up 16% over 2022, all nonresidential.
Inability to expand staff fast enough to match spending growth may limit some spending to lower than forecast.
Nonbuilding Infrastructure starts for 2022-23 are forecast up 37%. Spending 2023-24 is forecast up 20%. Starts since July are up 50% over the 1st half 2022 average. Highway/Bridge/Street starts increased almost 25% in 2022 and are forecast to increase 20% in 2023. Highway spending is up 9% in 2022, then increases 11% in 2023. A bigger spending increase of 16% occurs in 2024. Transportation starts will drop more than 30% in 2023, but that comes after a 100% increase in 2022. Transportation spending will jump 16% in 2023. Public Utilities, Sewer-Water-Conservation, collectively will post 60% growth in starts for 2021-22-23. Spending for this group increases 45% for 2022-23-24.
Midyear 2022 Spending Forecasts Compared – updated 2-1-23
How we doin?
In the AIA Midyear 2022 Consensus, eight firms provided forecasts for Nonresidential Bldgs markets construction spending for 2022. Their forecasts for 2022 are summarized here, percent +/- growth. Construction Analytics midyear forecast is included for comparison. Who is closest, who’s not? The year-to-date (YTD) value is through September 2022. I’ll update after final spending for 2022 is posted in Feb. 2023, and then revised in July. The Sept YTD data was released Nov.1st. I’ve included my current (Nov) forecast for 2022 final spending, the eventual target of all these forecasts, to the left of the table.
Here’s the initial 2022 total year spending released 2-1-23. This will get minor revisions in Mar, Apr and Jul. As in past years, I’ve highlighted in green for best estimate and red for worst estimate. This is the 3rd consecutive year I’ve produced collectively better forecasts than those published in the AIA Consensus. You can follow the links below this posts to prior year comparisons.
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 Spending thru Aug’22
Significant changes since my 9-1-22 forecast: Residential up $11bil 1.3%, Manufacturing up $6bil up 8%.
Residential construction spending is down 3.5% from the most recent peak in Mar 2022. It is on track to finish the year up 16%. Residential construction starts, $ as measured by Dodge, JJA 3mo avg is down 10% from the peak in the previous 3mo. But that peak qtr, MAM, is up 5% from the total in 2021 which was up 22% from 2020. Avg starts for the last 20 months has remained above the former high in 2005.
Nonresidential Buildings Construction spending is on track to finish the year up 8% powered by a 23% increase in Manufacturing spending and a 17% increase in Commercial/Retail spending. Nonresidential Bldgs new starts are projected to finish up 22% in 2022.
Total ALL Nonresidential construction spending, buildings and nonbuilding, is down 2.8% from the most recent peak in March 2022, but is up 5.2% year over year. Total Nonresidential spending is on track to finish the year up 4%, led by a 7.5% annual increase in Nonres Bldgs. but held back by a 9% drop in Power, 30% of the non-building total.
Spending took a downturn in April but this is expected to turn up after September. Most of the downturn is due to residential. By October all sectors are forecast to post gains.
The difference between these two plots is INFLATION, which adds nothing to the volume of work. The CONSTANT$ plot is like the volume of business that takes place. The Spending plot shows the $ that changed hands to conduct that business volume.
Midyear 2022 Construction Data
8-16-22
Construction Spending data updated 8-16-22, actual Year-to-Date through June, Census issued 8-1-22.
Forecast based on starts through July. Residential starts peaked in Feb-May 2022. Residential starts in July are down 15% from the highs reached in the 1st five months of 2022. Nonresidential Bldgs annual rate of starts reached a remarkable new high in July, almost 50% higher than the average of the 1st six months of 2022, and 30% higher than the previous single-month high in 2018. Non-Building starts for July reached 125% higher than the average of the 1st six months of 2022, and 50% higher than the previous high in 2019.
Watch for future revisions in Manufacturing Starts data. Through July, Mnfg starts are up 180% over the same seven months in 2021. It won’t be up 180% at year end. This may not yet be fully reflected here. This will add to spending mostly in 2023 and 2024. Also watch Power/Utilities which posted a 60% gain in the 1st seven months over same period in 2021.
Keep in mind, only time will tell how much of those huge gains in Mnfg and Power starts are a real increase in the amount of new work started or how much of that gain reflects an increase in the share of the market captured in the starts survey. Over the past 10 years, Dodge total starts data captured amounts to only about 40% to 50% of the final spending amount for these two markets.
Construction Starts forecast updated to 8-16-22
Construction Backlog forecast 8-16-22
After a two-year slowdown in backlog growth in 2021 an 2022, growth resumes in 2023 and 2024. Nonresidential Buildings leads in 2023, Nonbuilding leads in 2024.
Watch for this temporary decline in spending over the next few months. Some lower months of residential starts over the past nine months reduces residential spending from May to Sept 2022 before it returns to growth. More moderate declines in Nonres Bldgs and Nonbuilding also contribute to the downturn. Declines generally turn into gains by Q4 2022.
Much of the gains in spending in 2022 and 2023 reflects the very large increases in inflation. Spending after inflation, or volume of work, shown below, declines for all nonresidential in 2022 and declines for Nonbuilding and residential in 2023.
Residential volume peaked in Q1 2022 but will not return to that level until 2025. Both Nonresidential Buildings and Nonbuilding Infrastructure volume peaked in Q1 2020. Neither returns to that level before 2026.
Volume of work (spending minus inflation, or Constant $) has been dropping for several months and will continue to drop for several more months. But jobs have been increasing. Over the long term these two data sets should move in tandem, not in opposition. As greater separation between these two occurs, with jobs over volume, the productivity factor for the amount of work put-in-place per job worsens. That is a hidden factor adding to inflation.
See the PPI post for details on 2022 PPI data.
This month the July update to the Final Demand indices reflects that this index barely moves for two months, then in the third month, when Census performs a contractor survey to update the index, it moves 80% to 90% of the index value for the three months. The same has been true looking back over all recent quarters. Takeaway: the Final Demand indices cannot be used monthly. Essentially, these should be considered a quarterly index. Here I’ve calculated Q2 and Q1xQ2. You can 4x or 2x those results to get an annual rate, but I suspect most of the increase is already in this year, so Q3 and Q4 I’d expect to be lower than Q1 and Q2.
Burning Questions – Recession, Labor, Infrastructure
I gave two conference presentations in the past month. The most pressing questions from the audience were:
Are we headed into a recession? When will recession start?
What can be done about the labor shortage?
How can we support all the infrastructure work that is about to begin?
RECESSION
There is no question the sizable drop in starts in 2020 lead to a downturn in construction spending, mostly felt in 2021, but extending somewhat into 2022. However, this quickly turned around for residential spending and nonres bldgs spending is now past the low point caused by the pandemic initiated slowdown. With new construction starts to date at all-time highs and the forecast for new construction starts in the pipeline, it’s hard to envision how this would lead to a construction recession.
- In 2021, new starts increased 17%. Residential +21%, Nonres Bldgs +15% and Nonbldg +9%.
- In 2022, new starts are forecast up 11%. Residential +10%, Nonres Bldgs +18% and Nonbldg +4%.
- In 2023, new starts are forecast up 10%. Residential +12%, Nonres Bldgs +7% and Nonbldg +11%.
Total of all starts year-to-date in 2022 are up 6% over Jan-May 2021. Nonres bldgs starts are up 17% year-to-date. For the past 6 months, Dec’21 to May’22, residential construction starts posted 5 of the 6 highest months ever. The 6mo total for residential starts is the highest 6mo total ever recorded, up 4% over the previous 6mo record, posted in 2021.
Residential new starts get spent at a ratio of 70:30. Nonresidential Bldgs spending from new starts, on average, gets spent over the next 3 years in the ratio of 20:50:30. That is, 20% of spending from all starts within the year gets spent within the year started, 50% gets spent in the following year and 30% gets spent in the 3rd and sometimes 4th year. So from this we can say, if new starts are up 10% for the year then spending from that source will increase 10% x 20% or 2% the 1st year, 10% x 50%, 5% the 2nd year and 10% x 30%, 3% the 3rd year. If we get 3 consecutive years of growth in new starts there would be no downward pressure on spending for the next 3 to 4 years.
In the 2nd half of 2021, residential starts, although still strong, posted a few lower monthly totals. Although 2022 spending will still finish the year up, these lower monthly starts from late 2021 will work to cause a slight spending dip in the 2nd half of 2022. Nonresidential Bldgs spending is slowly increasing in 2nd half 2022. Nonbldg spending is flat or very slowly decreasing. The net effect is spending will post a decline in 4 of the next 8 months of 2022, but the total declines may not result in 2 consecutive quarters of declines. By the time we head into 2023, all three major construction sectors are in a growth pattern.
So, we will see a few months of spending declines, but the new starts pool of work is growing, not decreasing. The current forecast model is predicting no recession on the horizon.
LABOR SHORTAGE
This next plot shows labor and volume of work (spending minus inflation) to support that labor growing equally, albeit with short-term peaks and troughs, from 2011 to 2018. In fact, this equal growth extends far back with only few years causing exception to this pattern. This plot, and the extension of this plot to older data, shows that normally, labor increases at the same rate as volume. You can see that 2018 posted a significant drop in volume while jobs continued to increase. This departure had nearly corrected itself by Jan 2020.
The most recent construction spending report, issued July 1, revised unadjusted spending data for 2020 and 2021, both years added $30+bil. That brought volume up those years on this plot. The current spread between jobs and volume of work is still 10%.
In May of 2020, jobs were already on the rebound, but the volume of work was not. Work volume did recover some at the end of 2020 but then fell again, as was predicted, into mid-2021. In May of 2020, jobs and the volume of work were near balance. Since May of 2020, spending increased by 22%, but most of that was inflation. Since May 2020, actual work volume increased by only 1.5%. Jobs increased by 9%.
The last time the normal jobs/volume growth pattern was disrupted like this was 2006, the only other time in the last 25 years this occurred.
Volume, not spending, supports jobs. If volume is down, support for more jobs drops. If jobs increase while volume is declining then productivity is declining and the number of jobs required to put-in-place $1 billion of construction volume increases. At the same time, the inverse, the amount of volume put-in-place per job, decreases. This productivity loss drives up construction labor cost inflation and the need for additional labor to complete the job.
edited/added 8-6-22 Where the construction jobs are:
From Feb 2020 to Jul 2022 Nonres Bldgs and Nonbldg jobs are down 3.5% and 1.5%. Volume of work is down 20%.
Residential jobs are up 6.5%. Rsdn volume is up 14%.
It’s not quite that bad in either sector because some workers classified and counted as nonresidential perform work in the residential sector.
Total jobs up 1%. Total volume down 7%. That’s a slip of 8% in productivity. If labor is only 30% of total construction cost, an 8% slip in productivity is a 2.4% increase in inflation. That’s in addition to changes in wages.
INFRASTRUCTURE
The current administration has approved an infrastructure spending bill that earmarks approximately $500 billion for construction spending. It will take several years to start all this work.
The infrastructure spending bill may fund construction for a variety of buildings and non-building types of construction, for example, highway, water and sewer, educational, healthcare, etc. Rather than strictly classified as infrastructure, or as commonly referred to as nonbuilding construction, this bill will fund some forms of buildings and non-building construction in the public construction sector.
The total of all public construction is only 25% of all construction. This subset of construction totals about $360 billion in annual construction spending. It has never increased by more than $37 billion in spending ($35 billion in volume) in a year. Average growth is closer to $10-$15 billion/year. This public sector of construction does not have the capacity to increase by $100 billion/year.
As you can see in the plot above, it takes about 5000 jobs to support $1 billion of volume for 1 year. So, increasing volume by $35 billion in one year would require 35 x 5000 = 175,000 new jobs for that year. Keep in mind, this is to support a subset of construction that is only 25% of all construction.
Jobs rarely (4 out of 50 yrs) increase by more than 400,000 in one year for all construction. Even taking out the 13 years when jobs dropped, the average jobs growth for the past 50 years is only 220,000/year for all construction. That would seem to indicate the average growth for the public sector, at 25% of all construction, averages only 55,000 jobs/year.
Total all construction for the three years 2022-2023-2024 is forecast to increase $140 billion, $117 billion and $116 billion. The remaining 75% of the construction industry still adds a lot of demand for growth and jobs beyond just that of the public sector that gets a boost from the infrastructure bill. But after adjusting for inflation, the growth in volume over this three-year period is only about $120 billion. That would generate a need to create 600,000 new jobs over the next three years. About 25% of those jobs support the infrastructure funded growth.
If the infrastructure spending bill adds $35-$40 billion/year in spending, $30-$35 billion/year in volume, the need would be 150,000 to 175,000 jobs/year to support that 25% of the construction industry. Since it is unlikely the public sector of construction could add that many jobs, it is more likely the amount of construction spending added yearly will be somewhat lower.
Infrastructure has a slower spending curve than the 20:50:30 for nonres bldgs, roughly more like 15:40:30:15. If $100 bil of new contract awards start in 2022 then spending would be $15 bil in 2022, $40 bil in 2023, etc.. At $100 bil of new starts per year, the highest one-year growth would be $40 bil, probably double the pace the sector can grow.
Construction Forecast 2022 Update May22
Construction Spending is up +12% year-to-date for the 1st three months of 2022, again mostly driven by residential which is up 18.6% ytd. Total spending is up 11.7% year over year (Mar’22 vs Mar’21).
See end of post for downloadable pdf.
Total construction spending for the 1st quarter 2022 vs the 4th quarter 2021 is up +6.5%. I expect this rate of spending growth to flatten over the next six months.
Residential is about half of all construction spending. For the past 6 months, residential construction starts ($ by Dodge) posted the highest 6mo total ever recorded. Dec, Jan and Mar are all near Feb, the highest monthly total on record. This implies no slowdown in residential spending at least for the next 6 months although I expect by year end, residential (annual rate of) spending will be down about 2-3%.
Spending up year-to-date: Manufacturing up 34%, Commercial/Retail up 18% and Highway up 9%.
Spending down year-to-date: Public Safety (80% of Other) -31%, Lodging -27%.
Now 2 yrs since the onset of the pandemic, total construction spending in March 2022 is up 15%. Residential spending is 42% higher than March 2020, Nonresidential Bldgs is down 5%, Nonbuilding Infrastructure is down 6%.
Why is spending coming in well above any forecast prepared at the beginning of the year? Since October, new starts have come in much stronger than predicted, 8% higher than the previous high 6mo period which immediately preceded. But some markets increased way above average, residential and manufacturing. This most recent 6 month period for nonresidential buildings includes two months in which starts came in 30% higher than average. You can’t predict that. Residential construction starts posted the highest 6 month total ever recorded and Q1 2022 is the highest quarter ever. Not only are starts stronger than expected, but also the very high rates of inflation are inflating the spending data. Original forecasts for spending did not anticipate all types of work would experience such high inflation.
Construction buildings cost inflation over the last 4 years is up 21%. Labor cost is two parts, wages up 15% & productivity down 7%, for a net cost up 22%.
Labor is 35% of total building cost so 35% of cost that is up 22% = labor is 8% of that total 21% building cost inflation. Therefore, 8% out of 21% or fully 1/3 of construction inflation over last 4 years went into workers pockets.
Take out inflation and we get construction volume. In 2 yrs since the onset of the pandemic total construction volume (spending minus inflation) is down 2.5%. Residential construction volume is up 15%. Nonresidential Bldgs volume is down 16% Nonbuilding Infrastructure volume is down 15%.
Volume, not spending, supports jobs. If volume is down, support for jobs drops. If jobs increase while volume declines, then productivity drops and labor cost inflation increases.
Since Feb 2020, the last 2 years
Volume: Residential is up 10%; Nonres Bldgs down 17%; Nonbldg Infra down 15%.
Jobs: Rsdn up 5.75% (+171k), Nonres Bldgs down 4.5%(-159k), Nonbldg down 2.3% (-30k).
In 2021, jobs increased +2.3%. Volume was down -1.1%.
Post-pandemic recovery volume of construction may have temporarily peaked in the 1st quarter 2022 at 3.3% below Feb 2020. Over the next few months, spending mostly holds level, but inflation eats away at growth and volume declines by year end. This should hold jobs down.
In January, I wrote Construction Forecast 2022 – Jan22 a full length post and article on the Outlook for 2022. Below I’ve updated the complete article to include all data up to May 6, 2022
Construction Analytics 