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Construction Spending Actual through August 2021
Total Construction Spending compared to same period 2020 is now up 7.0% year-to-date (ytd). Residential spending continues to perform better than forecast and is now up 25.8% ytd. Nonresidential Buildings is now down -8.7% and Nonbuilding Infrastructure is down -3.8%, both improved in the last two months.
The single largest impact to the change in this forecast from last month is Residential. Spending continues to perform better than cash flow predicted from starts would indicate. For August, I expected residential spending to drop 1% compared to July, but it increased 0.4%. Also, it increased from an upwardly revised July. In this August spending report, residential spending was revised upwards in both June and July by 1% each month. That pushes the total up for my forecast for the year.
Highway also posted large upward revisions, +3% to June and +2% to July, but these revisions combined represent only $515 million. The Residential revisions alone total $2.2 billion, more than double the revisions to all other markets combined, including Highway.
Year-to-date through August, while residential is up 25.8%, all but one single nonresidential market is down. 15 of 16 nonresidential markets are down -8.7% for nonresidential buildings and -3.8% for nonbuilding infrastructure. Only Sewage/Waste Water is up 3.6% ytd., but that’s only 2% of all nonresidential construction. It’s half of the $ in the table item Sewer / Water / Conservation.
By year end I expect residential spending to finish up 20%, nonresidential buildings to finish down 7% and nonbuilding to finish down 3%.
Construction starts are slowly leading the way to recovery, with remarkable strength in residential, but construction spending, which is dependent mostly on starts from previous years (nonres bldgs starts in 2020 down -20%), will remain depressed for nonresidential construction well into 2022. New nonresidential starts could double from the current rate of growth and it still wouldn’t be enough to turn 2021 nonresidential spending positive.
Residential starts gained only +3% in 2019, increased +6% in 2020 and are forecast up +9% in 2021 and +7% in 2022. Residential spending surprisingly increased +15% in 2020 to $638 billion and is forecast up +20% to $767 billion in 2021, but only +4% in 2022. Both residential starts and spending are at all-time highs. That is driving total spending to new highs.
Nonresidential Bldgs starts fell -4% in 2019, -21% in 2020 and are now forecast up +8% in both 2021 and 2022. New starts for 2021 are still -20% below the peak in 2018. Most of the fall off in starts in 2020 would have produced peak spending in 2021. Nonresidential Bldgs spending fell only -2% in 2020 but is expected to fall -7% in 2021 and -2% in 2022.
Comparing combined 2020 and 2021 starts, the only markets to show positive growth over 2019 are Commercial/Retail, +5% (due to warehouses) and Healthcare, +7% (due to hospitals). The average growth in starts of all other nonresidential buildings markets for 2020 x 2021 combined is still 35% lower than 2019. Public Bldgs increased in 2020 but fell back in 2021.
My forecast, ever since August 2020, has been showing a decline in nonresidential buildings spending on a long downward trend through 2021 and into 2022. That forecast was then and still is now correct. The nonresidential building spending plot below shows that spending has declined in 16 of the last 18 months. Spending hits a bottom in 2022.
Nonbuilding starts were up 3% in 2019, fell -15% in 2020 and forecast indicates +6% growth in both 2021 and 2022. Nonbuilding starts are 10% lower than 2019. Nonbuilding spending gained only +1% in 2020, but the forecast is down -3% for 2021 and is expected to drop -5% in 2022. Like nonresidential buildings, the large drop in 2020 starts would have had peak spending well out at the midpoints of those projects, many of which would have been in 2021 or 2022.
For more on construction starts SEE New Construction Starts as of Aug’21
Behind the Headlines
An anomaly in the data is the Manufacturing spending data versus expectations. In 2020, Dodge posted a 57% drop in new starts for Manufacturing. Since many of these type projects have long time spans to completion and peak spending is near the midpoint of a project schedule, most of the drop in spending from that huge loss of new starts would normally occur in years following the starts. I predicted the drop would occur in 2021 and 2022, expecting it would produce a 20% decline in spending in 2021. But year-to-date Manufacturing spending is down only 1%. It did produce an 11% decline in 2020 spending, but that is not the extent of the total loss. This puts into question either my forecast of when the drop would occur or percent decline in starts reported. You can’t have a drop of 57% in starts activity and get only a 1% decline in spending the following year. Based on spending in 2020 and 2021 ytd, my forecast model is indicating there may be a variance in 2020 starts data % of market captured.
Part of the difficulty with the manufacturing data arises from the fact that history shows only approximately $20bil/yr to $30bil/yr is captured in the new starts data reported and yet spending has been in the range of $70bil/yr to $80bil/yr. That means only about 25% to 35% of the total market activity is being captured in the starts data. But from this we need to predict 100% of the future spending. This % of total market captured in the starts data fluctuates up and down. So the difficulty is predicting actually how much of the market is captured, and that varies. The question is this: How much of the change in the starts data reflects an expected change in future market activity versus how much of the change in starts reported represents an unidentified variance in % of market captured. A variance in % of market captured in the data may not indicate a change in future market activity (spending). Since project schedules can be anywhere from less than 20 months to more than 4 years, any given year of actual spending could have some portion of that spending generated by project starts from the previous 4 or more years. It takes several years of actual spending to identify the differences in these two parts of the question. Only future data will help resolve this question.
Another set of data to question is residential starts. Currently, for 8 months through August, starts are up 18% over 2020. Starts began to climb in July 2020 and posted a very strong final 5 months of 2020. This year average starts to date is at all-time highs. But Dodge, in the 3Q21 Outlook, forecast 2021 residential starts up about 9%. In order for that to happen, for the remaining 4 months residential starts would need to drop 20% from the current average rate, 10% below the most recent month. That seems a bit unrealistic. That would set the monthly rate back to a point lower than anything experienced since the pandemic lows in Apr-May-Jun last year. It seems to me residential starts will finish quite a bit higher than that. I’m carrying 12% growth for the year in my forecast.
Recovery in both nonresidential buildings and nonbuilding backlog begins to build in a few markets in 2021. Even though starts growth in % is greater than spending growth in %, overall spending in nonresidential buildings and non-buildings in dollars, not %, is exceeding new starts. Therefore both will begin 2022 with lower backlog than 2021. Total all nonresidential 2021 starting backlog dropped -9% from 2020. Starting backlog to begin 2022 will be down another -5%. Based on forecast growth in new starts, backlog increases 4% for 2023.
Aside from residential, recovery to the levels of revenue (spending) recorded in Q1 2020 or earlier won’t show up before 2024.
The following table shows ytd through August $ and forecast for 2021/2022. Almost every nonresidential market is down ytd and down compared to the average in Q1 2020 before Pandemic Recession.
Impact of Pandemic Slowdown
The impact of reduced starts in 2020 is showing up in the 2021 year-to-date results. Total Nonresidential Buildings starts were down -20% from April 2020 through March 2021 compared to pre-pandemic high in Q1 2020. Nonres Bldgs starts improved from Apr-Jul 2021 and for those 4 months managed to equal the pre-pandemic high. However, the 2021 average year-to-date through August is still 14% lower than the pre-pandemic high. Nonbuilding Infrastructure starts returned to pre-pandemic high several months ago, but have since slowed.
Due to the large drop in new nonresidential buildings starts from Apr 2020, that continued at a level down -20% until March 2021, some markets will be affected by a downward trend in spending for two to three years.
The greatest downward impact from a -20%, year-long loss of starts in nonresidential spending will be felt throughout 2021 and into 2022.
Construction Analytics has been describing this situation and provided plots showing what would occur in nonresidential buildings spending since August 2020. A review of the historical forecasts will show those forecasts mostly correct. The plot below, Construction Spending by Sector, shows the current forecast and actual data through August 2021. The explanation and the plotted data have been similar since last year.
Over the next 9 months, every sector will post more down months (in spending) than up months, although the declines will be most noticeable in nonresidential buildings. The plot line for Nonresidential Buildings may not look like much is going on, but in a minute you will see the magnitude of that downward sloping line.
Overall performance forecast by sector has changed very little since May of this year.
While most markets recover to positive new starts growth in 2021, spending growth lags, showing the downward trend in 2021 as a result of lost starts in 2020.
This next plot changes the scale so the nonresidential buildings spending data can be visualized much easier. This is the exact same data as in the Construction Spending by Sector plot above. The scale change helps to visualize the dramatic decline in nonresidential buildings spending. From Apr through Dec 2020, nonresidential buildings spending fell at a rate of 1.75%/month. Jan 2021 and Mar 2021 are the only up months since Feb 2020. From Apr 2021 through Aug 2021, the rate of spending fell at 1.25%/month. Currently, the annual rate of spending is 17% below the pre-pandemic peak. By midyear 2022, the annual rate of spending will be -20% lower than the pre-pandemic peak. It could take two to three years after that to recover to the pre-pandemic level of spending.
A typical batch of new nonresidential construction starts within a year gets spent over a cash flow schedule similar to 20/50/30, that is, 20% of all starts in the calendar year gets spent in the year started, 50% in the next year and 30% in years following. Total nonresidential buildings starts in 2020 were down -20% ($90 bil in spending) and nonbuilding starts were down -10% ($35bil). Under normal conditions, we know how much of that $125 bil would have occurred in 2020, 2021 and 2022. That’s a loss of spending this year, and that loss remains a steeply downward slope as long as starts remain depressed. Nonresidential buildings starts, depressed for 13 months, posted starts indicating recovery beginning in April this year.
Let’s assume INFRASTRUCTURE BILL new starts begin in Jan 2022, and let’s also assume $100 billion worth of work gets awarded in 2022. That’s $100 billion of starts in 2022. Only a maximum of 20% (the 1st year portion of the cash flow 20/50/30) gets spent in the 1st year. Therefore, even if $100 billion in new infrastructure starts begin in 2022, only 20% of that or only $20 billion would get spent in 2022. So, there will be very little impact on total 2022 construction spending as a result.
That changes dramatically for the second year. For 2023 we get 50% of the spending from 2021 starts and 20% from 2022 starts, so $70 billion in spending, growth of $50 billion.. That’s already more than the industry can handle.
Total Public Infrastructure and Public Institutional, the total public work pool for which infrastructure investment is a potential, represents a total LESS THAN $350 BILLION annually, less than 25% of all annual construction. Average growth is $12 billion/year. Looking back to 1993, this subset has never exceeded $35 billion in growth in a single year. If we award (start) $100 billion in new work each year for the next 5 years, we would cap out the growth rate for spending in this subset of work, with no room for any additional new starts from any other sources. The work would be completed after 8 years.
All the forecast spending in the data above is developed from monthly cash flow of new starts. This plot shows the history of the cash flow forecast (the light colored line) to the actual spending growth (the darker line). The cash flow forecast has been predicting the drop in nonres bldgs spending since last year. Although actual spending is somewhat more uneven, the forecast accurately predicts the direction spending is headed.
2021 Midyear Forecasts
Here’s how my (Construction Analytics) midyear spending forecast compared to various firms’ data published in the AIA Midyear Forecasts and how we all compare to the current August year-to-date spending. The year-to-date (ytd) performance provides insight into expected final 2021 performance. For example, the year-to-date Educational spending is -10.6% with 8 months of spending recorded. You can see in the table, one firm had forecast that educational will finish up 3.5% for the year. (Not shown here, but the AIA Consensus for Educ. is -2.1%). With 8 months of actual ytd data and only 4 months remaining (estimate to complete or etc), we can tell what would be needed in the remaining 4 months to get to any particular estimate.
To finish the year up +3.5%, for the next 4 months Educational spending would need to average +32% year-over-year (yoy) growth per month over last year to swing from currently down -10.6% to up +3.5% . Well, Educational spending is down 16% from the 2020 high, has been averaging down 11% yoy for the last 7 months, has fallen 7 of the last 8 months and is down mo/mo an average of 1.5%/mo for the last 6 months. With this performance over the past year, the probability is not likely at all that Educational construction spending is going to flip from a negative yoy -10.6% to an avg of +32%/mo for the remaining 4 months to finish the year up +3.5%. (To meet the AIA Consensus for Educ., the final 4 months would need to swing to +15%/mo). While there are some good estimates, there are many more examples like this in the AIA forecasts.
In 2020, Construction Analytics produced more accurate midyear forecasts than any firm reporting in the AIA Midyear Outlook. Here’s the 2021 midyear forecasts compared to the current August year-to-date. As for the 2022 Outlook, every forecast in the AIA Midyear report predicts 2022 nonresidential buildings spending will increase. See my spending forecast table above in this report where I’ve projected almost every nonresidential market down in 2022.
JOBS DATA has been updated with the jobs data release on 10-8-21
Construction Starts for August reported by Dodge.
Residential construction starts fell 9% in August, but that is after the previous 8 months of Residential starts were each higher than any other months ever recorded. The average of new residential starts for 2021 is 18% higher than the pre-pandemic high in Feb 2020 and 24% higher than the average for 2020..
The 4 highest months on record for residential construction starts are Mar (peak), Apr, May and Jun 2021, indicating spending should remain high. My current forecast has 2021 residential construction spending up 19% for the year.
Compare new construction starts for residential to new starts for nonresidential buildings. The current situation is like night and day.
Nonresidential Bldgs construction starts fell 13% in August. Compared to the pre-pandemic high (Feb 2020), May (+8%) and Jun (+1%) are the only two months higher. July was 2% lower, Aug 14% lower. The average for all 2020 finished 20% lower than the pre-pandemic high in Feb 2020. New 2021 starts avg is 9% below Feb 2020.
If monthly starts can recover to the pre-pandemic high of Feb 2020 from here on forward, then the low point of spending will be in the 3rd qtr 2021. Monthly spending still would not recover to pre-pandemic level until Jan 2023. However, we are currently not at a consistent recovery to pre-pandemic levels of new starts and the longer we remain below recovery level both dates would move out.
New starts in almost every Nonresidential Bldgs market are up for 2021, but some of that 2021 growth is off of such a low base in 2020, the combined current level is still quite low, far below the pre-pandemic highs. Compared to pre-pandemic starts, Mnfg is down -30%, Office -13%, Lodging -57%, Amuse/Rec -30%. Only Healthcare +5% and Public Bldgs +8% are up. The good news is total nonresidential buildings starts for the 4 months Apr’21 thru July’21 is now 52% higher than Apr’20 thru Jul’20.
Manufacturing was by far the worst performer in 2020, new starts in 2020 down 55%. Although Lodging gets a lot of attention because starts dropped 50% and spending reacted immediately by dropping 13% in 2020 and currently -30% for 2021, but that’s only for a total decline of $13 billion over two years. Manufacturing spending, for projects which have longer durations, fell $9 billion in 2020 and could drop another $12 billion over the next two years.
Manufacturing construction spending peaked between 2015 (all-time high of $83bil) and 2019 ($81bil). We won’t see spending like that again before 2025 unless new construction starts double and that is not in the forecast.
New manufacturing starts for 2021 are up more than 35% for 2021, but that 35% increase is from 2020’s 55% decline, an 8yr low, so 2021 is still lower than the previous 3 years. Manufacturing markets are improving, but off of an 8yr low, so it will take some time to get back to 2015-2018 values.
Warehouses is the biggest up story of all. Warehouses are included in the Commercial/Retail sector and represent now about 60% of the Comm/Rtl total $. In 2017-2019 that was only 40%-45%. Warehouse starts were up +25% in 2019, +14% in 2020 and are forecast +24% for 2021. Starts are also forecast up for 2022.
Some data on the Office sector: Starts in 2020 fell 20% from the 2019 high. Total office starts in 2021 are up 4%, but most of that is Data Centers ( up15%). Office space starts are up less than 2%. In Q1 2021, 46% of all office starts was renovation. Office Vacancy rates reached as high as 16% to 17% in Q1 and Q2 2021, but are now back down to 12%. Pre-pandemic vacancy rate was 9%.
Included in the Office sector, Data Centers is about 15%-20% of the Office total. Starts fell 22% in 2019 and 23% in 2020. Starts are up 17% in 2021, but still 30% below the 2018 high.
Amusement/Rec spending in 2021 could finish down 15%, with new starts up only 3% to 4%, but that’s up from 2020 which was down 35%. Educational spending will be down 8% to 10% and new starts are down to flat.
Nonbuilding Infrastructure construction starts are up 1% in August. Compared to the pre-pandemic high (March 2020), August is up 2%. However, the 2020 average finished higher than the pre-pandemic level and every month since last August has been higher than March 2020. New 2021 Nonbuilding starts avg is 10% higher than March 2020.
The only non-building markets to show growth in 2020 starts were Highway/Street (+9%) and Sewer (+5%). Power posted the largest losses, down 38%. That represents a loss of $45 billion in construction that would have been spread over the next 3 to 5 years. Almost all nonbuilding markets will post gains in 2021. Non-building Infrastructure markets are usually not affected as much in a downturn because public funds are committed to these projects. Power shows most of the losses because it is 95% private work.
Economists should be talking about this. While residential starts and spending are at all-time highs, nonresidential buildings starts have been down for months and spending is still declining.
Since Apr 2020 and now through March 2021, Nonresidential Bldgs construction starts, for 12 months, have averaged down 25%+ compared to Q1 2020. Recent Q1 2021 is still down 22% from Q1 2020.
A full year of nonres bldgs starts generates over $400 billion in spending. With starts down 25% for the past 12 months, that’s a loss of over $100 billion in spending that would have occurred over the next 1 to 3 years.
Spending follows as starts move, only later, so spending will fall.
Actual nonresidential buildings construction spending has been down 10 of the last 12 months. Now in Mar 2021 it is at its low point, 9% lower than Q1 2020. The forecast for the remainder of 2021 is down near 1%/month.
A simple model built to show when starts have maximum impact on spending indicates by Dec 2020 Nonres Bldgs construction spending put-in-place would be 10% lower than Q1 2020. Spending was actually 9% below Q1 2020. So the model seems to be on track.
This table sets Feb 2020 starts to a baseline of 10.0. All other starts afterwards are entered at the percentage of actual $ starts that month compared to Feb 2020, so 8.30 in March of 2021 represents starts for Mar 2021 were 83% of Feb 2020. A lost start is negative spending. So, instead of thinking of the peak month of spending, that becomes the month of greatest loss. Those months near the middle of the schedule, are highlighted here.
Dodge is forecasting new construction starts for nonres bldgs will increase ~4% in 2021 and ~10% in 2022. That means starts in 2021 will still be 20% lower than Q1 2020 and starts in 2022 will still be 12% lower. This has major implications.
Even at 10%/yr growth in new starts in 2022, 2023 and 2024, Nonres Bldgs Starts would not return to pre-pandemic level until mid 2024. If starts remain lower than Feb 2020 through 2023, then spending will remain lower than Feb 2020 through 2024.
That model, that’s on track so far, shows maximum impact from reduced 2020 starts will occur in Q2-Q3 2021. But what about 2021 starts? Negative impact continues longer than the # of months starts remain lower than Q1 2020. We now have 12 months of starts still averaging 22% below Q1 2020, so even when we begin to improve, we are measuring from a new base 22% down. For each lower month the greatest negative impact in spending is 10-12 months later. That loss of spending is shown in the following chart for Nonres Bldgs Spending.
By the end of 2021, Nonres Bldgs construction spending put-in-place is forecast to be almost 20% lower than Q1 2020. If the Dodge forecast of 4% growth in starts for 2021 is correct, then, even though 2021 had growth, it’s off the bottom, and 21 months of starts will have averaged down 22% from Q1 2020.
Nonresidential Bldgs construction spending follows as starts go. If starts are down, future spending will be down.
Nonresidential Buildings spending $ put-in-place will not return to pre-pandemic levels before 2024 or 2025.
By far the greatest impact of the pandemic on construction is the massive reduction in new nonresidential construction starts in 2020 that will reduce construction spending and jobs for at least the next two years.
In the Great Recession, beginning in Q4 2008, nonresidential buildings new construction starts fell 5%, then fell 31% in 2009 and 4% in 2010. Spending began to drop by Dec 2008, then dropped steadily for the next 24 months. Spending dropped 40% over that next two years. During that period, residential starts and spending fell 70%.
In 2020, nonresidential buildings starts fell 24%, but the six months from Apr-Sep, starts fell 33%. Starts are forecast to fall 4% in 2021. Nonres Bldgs spending began to decline in Aug, is now down 10% from Feb high and is forecast to drop steadily the next 20 months, for a total decline of 25%. This time around residential starts and spending are increasing.
The measure of decline due to Pandemic delays and shutdowns is not the difference between Q3 vs Q1 growth or spending. Nor is the impact measured by the current difference in ytd performance vs 2019. The measure of decline due to Pandemic delays and shutdowns is the difference between what was forecast for growth pre-pandemic vs actual growth.
New construction starts projected for 2020:
- Total 2020 Construction Starts now forecast down -11%, pre-pandemic forecast was up 2%
- Nonresidential buildings now down -22%, pre-pandemic forecast was up 1%
- Non-building infrastructure now down -15%, pre-pandemic was up 2%
- Residential new starts now up 1%, pre-pandemic was up 2.5%.
New starts for 2021 were originally forecast up 1.5% to 2% in all sectors. The current 2021 forecast shows residential up 4.5%, nonresidential buildings up 4.6% and non-building infrastructure up 11%. Residential is already at a new high, but nonresidential buildings and non-building infrastructure will still be lower than 2018.
Future impact from delays/cancellations and reduced starts
Total construction starts year-to-date for 10 months through October are now down only -11% from 2019 ytd. Total starts had been down -14% to -15% ytd for the previous four months. Nonresidential buildings starts are down -24% ytd and non-building infrastructure starts are down -14% ytd. Residential starts are now up ytd +2% from 2019.
The most recent four months total residential starts, Jul-Aug-Sep-Oct’20, posted the highest 4mo total since 2005. The next highest 4mo total since 2005 was for the period Nov-Dec’19-Jan-Feb’20. So, the two best 4mo periods of new residential construction starts in the last 15 years have occurred in 2020. In August, residential starts posted an all-time high. Much of the spending from these starts carries into 2021 and supports residential spending growth in 2021.
The following table shows, for each market, the current forecast for new construction starts. With exception of residential, spending in all other markets, due to longer schedules, is most affected by a decline in new starts, not in the year of the start, but in years following. Some effects of reduced starts have not even begun to show up in the data. A 20% decline in new nonresidential starts in 2020 results in a huge decline in spending and jobs in 2021-2022. Residential spending hit bottom in May 2020 and ultimately will post an increase in 2020. Nonresidential Buildings spending will not hit bottom until 2022.
Dodge updated their Outlook to show 2020 construction starts for nonresidential buildings fall on average 20%, less in some markets, but -30% to -40% in a few markets. Only warehouses is up. Non-building starts fall on average 15%. Only Highway/Bridges is up. Residential starts may post an unexpected gain in 2020 and are forecast to climb 4.5% in 2021.
Starts lead to spending, but that spending is spread out over time. An average spending curve for nonresidential buildings is 20:50:30 over three years. Only about 20% of new starts gets spent in the year they started. 50% gets spent in the next year. The effect of new starts does not show up immediately. If new nonresidential buildings starts in 2020 are down 22%, the affect that has on 2020 is reduced spending by -22% x 20% = – 4.4%. The affect it has on 2021 is -22% x 50% = -11%. In 2022-2023 the affect is -22% x 30% = -6.6%.
Many nonresidential buildings have durations that last 24 to 36 months, with peak spending 12 to 18 months from now. With the 22% drop in new starts this year, that peak spending 12 to 18 months from now will be impacted negatively. Some nonbuilding markets have project durations that go out 5 or 6 years, so the impact of a decline in 2020 starts may be felt at least until 2025.
Starting backlog is the estimate to complete (in this analysis taken at Jan 1) for all projects currently under contract. The last time starting backlog decreased was 2011.
Backlog leading into 2020 was at all-time high, up 30% in the last 4 years. Prior to the pandemic, 2020 starting backlog was forecast UP +5.5%. Due to cancelations, that has been retroactively reduced to +2.7%.
Starting backlog pre-pandemic forecast for 2021 was UP +0.3%. Due to fewer new starts in 2020, that has now been reduced to -10.6%. By far, the greatest impact is due to nonresidential buildings for which backlog declined by 17%.
If construction starts in 2020 do not outperform 2020 construction spending, then 2021 starting backlog will be lower than 2020. My current forecast (2020 starts down -10.7%) indicates 2021 starting backlog will be down by -10%. Spending declines into 2021 and remains depressed through 2023.
80% of all nonresidential spending in any given year is from backlog and could be supported by jobs that started last year or 3 to 4 years ago. Residential spending is far more dependent on new starts than backlog. Only about 30% of residential spending comes from backlog and 70% from new starts.
Some of the projects delayed or canceled started before Jan. 2020. When one of those projects is delayed, the portion of the project delayed gets shifted and remains in future backlog longer. When one of those projects is canceled, the portion of the project not yet put-in-place gets removed from 2020 and future backlog. Not only does that reduce future backlog but also that retroactively reduces the backlog that was on record at the start of 2020. Therefore, 2020 backlog is reduced by cancelations and future backlog is increased by delays, but reduced by cancellations and a loss of new construction starts.
Future impact on Backlog from delays/cancellations and reduced starts
Projects in starting backlog could have started last month or last year or several years ago. Many projects in backlog extend out several years in the schedule to support future spending. Current backlog at the start of 2020 would still contribute some spending for the next 6 years until all the projects in backlog are completed.
Total starting backlog will fall -11% for 2021 and -4% for 2022. Due to new starts declining by 22% in 2020, Nonresidential buildings backlog drops -17% for 2021 and drops -7% for 2022. For non-building infrastructure, a drop of 15% in 2020 starts results in a drop of 8.7% in 2021 starting backlog.
The biggest changes to 2021 starting backlog are Lodging (-42%), Amusement/Recreation (-40%). Manufacturing (-26%) and Power (-20%). 2021 backlog declines in every nonresidential market, except Highway.
Reductions in starts and starting backlog lead to lower spending. Residential construction is going counter to the trend and will post positive results for new starts, backlog and spending for the next two years. Nonresidential buildings will experience the greatest reductions in new starts, backlog and spending through 2022.
The next table shows spending year-to-date (ytd) through October (released 12-1-20) along with spending forecast for the year. 2nd quarter construction spending activity low-point was down only 5.5% from the Feb peak. Construction spending through October ytd is up 4.3% with Residential ytd up almost 10%.
Almost every market has a weaker spending outlook in 2021 than in 2020, because of lower starts in 2020. Although starts are forecast down -15% to -20% in 2020 and then up +5% to +15% in 2021, the drop in starts in 2020 has the greatest impact on reducing spending in 2021. Most of the reduced spending impact from the lost starts is felt in the future, when those lost projects would have been reaching peak activity at the midpoint of construction. Nonresidential buildings starts in 2020, now down 28% the last seven months. Lowpoint of spending from lost 2020 starts is late 2021- early 2022.
Residential spending looks stable heading into 2021, Nonresidential Buildings spending drops -2% to -3% each quarter in 2021. By Q4 2021, nonresidential buildings spending is down 15% from Feb 2020. When looking at Total Construction Spending for 2021, residential growth obscures the huge declines in nonresidential.
YTD spending for Nonresidential Buildings is currently -1.2% and my 2020 forecast shows Nonres Bldgs ending the year down -2.1%. Some forecasters are predicting spending for nonresidential buildings will end the year down much worse compared to 2019. It would now be difficult to move the end-of-year forecast %change by much, with already 10 months recorded at an average of -1.2%. Also, some forecasts for 2021 predict spending for nonresidential buildings will increase. Remember, most of the reduced spending impact from the lost starts is felt when those lost projects would have been reaching peak spending.
Nonresidential Buildings construction will take several years to return to pre-pandemic levels. Although nonresidential buildings spending is forecast down only -2%, the gapping hole left by the 15%-25% drop in 2020 construction starts will mostly be noticed in 2021 spending. Project starts that were canceled, dropping out of new backlog between April and September 2020, would have had midpoints, or peak spending, April to September 2021. Nonbuilding project midpoints could be even later. The impact of reduced new starts in 2020 is reduced spending and jobs in 2021 and 2022.
Construction Jobs are projected to fall in 2021. While 2021 Residential spending will climb about 10%, Nonresidential building spending is forecast to drop -10% and Non-building spending drops -4%.
A recent AGC survey of construction firms asked, how long do you think it will be before you recover back to pre-COVID-19? The survey offered “longer than 6 months” as an answer choice. Less than 6 months was the right answer for residential, but my current forecast for full recovery of nonresidential buildings work is longer than 6 years.
UPDATES to Construction Outlook 10-16-20 based on
- Forecast includes US Census Aug 2020 year-to-date spending 10-1-20
- Forecast includes Dodge September construction starts 10-15-20
- Actual Jobs data includes BLS Jobs to Sept (12th) issued 10-2-20
This update accompanies pandemic-13-midyear-construction-outlook
Total construction starts year-to-date for 9 months through September are down 14%. Total starts have registered down -14% to -15% YTD for the last four months.
Residential new starts are down year-to-date only 1% from 2019. However, the last three months total residential starts posted the 2nd highest 3mo total in 15 years. The highest 3mo total since 2005 was for the period Dec’19-Jan-Feb’20. So two of the best 3mo periods of new residential construction starts in the last 15 years have occurred in 2020.
Nonresidential buildings starts are down 26% and non-building infrastructure starts are down 18%.
This chart shows a comparison of the cash flows predicted from new all construction starts vs the actual spending. Over time, the cash flows do a very good job of predicting where spending is headed. Note the divergence of residential in Jun-Jul-Aug 2020. Actual spending finished on avg 3%/mo higher than predicted. In 3 months the actual spending pushed 10% higher than predicted. This may be a reflection of forecasting too high an amount for delays and cancelations.
Construction Spending drives the headlines. Construction Volume drives jobs demand. Volume is spending minus inflation. Inflation $ do not support jobs. Current outlook shows (recent) peak volume was 2017-2018. Volume is forecast to decline every year out to 2023.
Construction jobs gained slightly in Sept, but are still down 5% (400,000) from Feb peak. Construction may experience only slight jobs improvement in 2020 (residential spending is increasing), but nonresidential buildings declines through 2021 will drive construction jobs lower over next 18 months.
Jobs are supported by growth in construction volume. We will not see construction volume return to Feb 2020 level in the next three years. This time next year, volume will be 5% lower than today, 14% below the Feb 2020 level.
This is why the construction industry will have a hard time justifying growth in jobs. After 12 years of fairly even growth in jobs vs volume, that relation broke in 2018. Volume is currently at a 5-year low, well below jobs. Declining work volume is indicating by this time next year we may be down 600,000 jobs below the Feb 2020 high.
The following table shows which markets have the largest (and smallest) changes in new construction starts. With the exception of residential, due to longer durations, spending in all other markets is most affected by a decline in new starts, not in this year, but in years following. Residential spending hit bottom in May, will post an increase in 2020. Nonres Bldgs spending won’t hit bottom until 2022.
A recent AGC survey of construction firms asked the question, How long do you think it will be before you recover back to pre-Covid? The survey offered “longer than 6 months” as an answer choice. My current forecast is longer than 6 years.
Some effects have not even begun to show up in the data. A 20% decline in new nonres bldgs starts in 2020 means a huge decline in spending and jobs in 2021-2022. How long before construction returns to the level it was at in Feb? 6 to 8 years.
Many nonresidential buildings have durations that last 24 to 36 months, with peak spending 12 to 18 months from now. With the drop in new starts this year, that peak spending 12 to 18 months from now will be impacted. Some nonbuilding markets have project durations that go out 5 or 6 years, so the impact of a decline in 2020 starts may be felt at least until 2025.
If construction starts in 2020 do not outperform 2020 construction spending, then starting backlog Jan. 1, 2021 will be lower. My current forecast (starts down 11%) is indicating 2021 starting backlog will be down by almost 10%. Spending declines into 2021 and remains depressed through 2023.
The last time starting backlog decreased was 2011. Starting backlog will fall 10% in 2021 and 2% in 2022. Except for residential, about 80% of annual spending comes from starting backlog.
The next table shows spending year-to-date through August (released 10-1-20) and the spending forecast for the year. 2nd quarter construction spending activity low-point is down only 5.5% from the Feb peak. Construction spending in August YTD is up 4.2%.
Residential ytd is up 7.2%. Single Family is +3.0%, multifamily is +2.7% and renovations is Reno +15.6%. Nonresidential buildings ytd is down -0.3% and Nonbuilding Infrastructure ytd is +5.8%.
Take note here, the YTD spending for Nonresidential Buildings is currently -0.3% and my 2020 forecast shows Nonres Bldgs ending the year down -2.6%. Some forecasters are predicting spending for nonresidential buildings will end the year down much worse than -2.6% compared to 2019.
With only 4 months remaining, in order for Nonres Bldgs spending to finish down even -5%, the monthly rate of spending compared to 2019 would need to drop to -14%/mo for each of the remaining 4 months of 2020. (8mo x avg -0.3% + 4 mo x avg -14%) / 12mo = -5% total for the year. To end the year down -8%, nonres bldgs spending for the next 4 months would need to come in 25% lower than 2019. That’s “Great Recession” territory.
How unlikely is this to occur? The greatest monthly declines in 2020 so far are July and August in which the monthly rate of spending dropped -3% to -4% compared to same month 2019. Essentially, for nonresidential buildings spending to end the year down -5%, the bottom would need to drop out of the nonresidential markets, beginning back on Sept 1 and continuing for the final 4 months of the year.
Not sayin’ it can’t happen. This is 2020!
2020 Construction Forecast Briefs
12-23-19 updated 1-4-20
updated 1-4-20 – The construction spending forecast for 2019 is revised up to $1,304 billion, still a decrease of 0.2% vs 2018. Almost all of the revision up is residential spending that was added in Oct and Sept Census spending revisions released 1-3-20.
The forecast for 2020 construction spending is $1,360 billion, up 4.5% over 2019.
Total Spending increased 9%/yr. from 2012 to 2016, then in 2017 and 2018 slowed to 4%/yr. Spending declined <1% in 2019 and is forecast up 3% to 4% for both 2020 and 2021.
New construction starts, as reported by Dodge Data and Analytics, increased 7%/year in 2016 and 2017, but only 3% in 2018. Starts are forecast to decline slightly in 2019 and 2020.
New construction starts data captures a share of the total market or a portion of all construction spending, on average about 60% of all construction. In this analysis every market is adjusted by its own individual market share factor.
Applying the market share factors, starts are forecast up slightly in both 2019 and 2020.
Backlog reaches a post-recession high starting 2020, up 20% from 2017, up 100% from 2013. Starts and backlog growth are forecast to remain below 3%/year gain or decline over the next few years. Total spending has only slight gains in 2021 and 2022.
Backlog at the beginning of the year or new starts within the year does not give an indication of what spending will be like within the year. Backlog increases if new starts during the year is greater than spending during the year. An increase in backlog could be a level rate of market activity for a longer duration. It takes several years for all the starts in a year to be completed. Cash flow shows the spending over time.
The best indicator of future construction activity is the sum of the projected cash flow generated by all the construction starts that have been recorded.
plots updated 1-4-20
Spending cash flow predicted from Dodge Starts and construction spending to date.
A what if scenario in which new construction starts drop by 10%:
On average about 20% of new nonresidential construction starts gets spent within the year started, 50% is spent in the next year and 30% is spent in future years. (For residential the spending curve is more like 70%-30%). If new starts drop by 10% this year, that has only a -2% impact on total nonresidential buildings spending for this year. It would be -5% next year, -3% after. If starts drop a second year, the same impacts occur, shifted one year out, and the total impact for both years is added.
Only about 30% of residential spending within the year comes from backlog and 70% from new starts. If residential new starts drop 10% that impacts total residential spending by 7% in that year.
Nonresidential Buildings starts (excluding Terminals) have reached a new high every year since 2009, but the last three years starts are up only 2% to 3%/year. Every market posted increases in 2017 and 2018. Only Commercial/Retail and Amusement/Recreation declined in 2019. Backlog for Office Buildings, which includes data centers, is up 100%+ since 2015. Spending is still up 4% in 2020 but then with the slowdown in starts forecast in 2020, backlog growth stalls and spending slows in 2021-2022.
Nonresidential buildings markets advancing in 2020-2021 are Educational, Healthcare, Office and Manufacturing. Markets declining are Amusement/Recreation, Commercial/Retail and Lodging.
Non-building Infrastructure starts (including Terminals), up 4% in 2019, are at an all-time high. The two markets with the largest share of new starts are Highway/Bridge and Transportation. Transportation terminals and rail starts are up 30% in the last three years, but backlog has nearly doubled because a large portion of those starts is very long duration projects. Starts are forecast up only 1% in 2020 but backlog peaks in 2021. Spending increases are in the 6% to 8% range at least for the next two years.
Spending in recent years has been boosted by Transportation terminals, Highway and Public Works projects. Power is flat or down slightly.
Residential starts averaged 19%/year growth from 2012 to 2016 but slowed to 5%/year for 2017 and 2018. Starts declined in 2019 and are forecast to decline again in 2020.
The outlook for residential construction spending has improved slightly. Previous forecast had residential spending in 2019 down 6% and 2020 up only 2%. That’s been revised to now forecast 2019 down 4.5% and 2020 up 5%. Spending holds steady in 2021.
If spending is increasing 3%/year at a time when inflation is 5%/year, then real volume is declining. In the last two years, spending increased only 3%, but construction inflation totaled 9%, therefore
in two years, real volume declined by 6%, yet jobs increased by 7.5%.
Since early 2018, jobs have been increasing while construction volume is declining. The volume of work in the last two years does not support jobs growth.
Volume, spending adjusted for inflation in Constant 2017$
Nonresidential Buildings will post declines in volume in 2020 & 2021. Residential volume gains 1% in 2020 but slips again in 2021. Non-building Infrastructure will increase volume about 3%/year. Overall, total construction volume declined in 4 of the last 6 quarters and is forecast to drop slightly in 2 or 3 quarters in 2020.
One of the best predictors of construction inflation is the level of activity in an area. When the activity level is low, contractors are all competing for a smaller amount of work and therefore they may reduce margins in bids. When activity is high, there is a greater opportunity to bid on more work and bids can be higher. The level of activity has a direct impact on inflation.
Volume declines should lead to lower inflation as firms compete for fewer new projects. However, if jobs growth continues while volume declines, then productivity continues to decline and that will add to labor cost inflation.
Jobs vs Volume growth set to base year 2011
Average long-term nonresidential buildings inflation excluding recession years is 4.2%.
Average long-term (30 years) nonresidential construction cost inflation is 3.5% even with any/all recession years included.
Nonresidential buildings cost inflation for 2018 and 2019 averaged 5%. It’s predicted closer to 4.5% for 2020 and 4% for 2021.
Residential buildings cost inflation for 2018 and 2019 averaged 4%. It’s predicted at 3.75% for 2020 and 2021.
For more on the 2020 Forecast see these
Examples of how commonly reported construction data can often be misused – Construction Spending and Construction Starts
Construction Grew $41 billion, 3.3%, from 2017 to 2018
An increase in construction spending is often referred to as growth for the industry, but that is incorrect. Construction spending measures the change in the dollar value of work performed, not the volume of work performed.
The difference between spending (or revenue) and volume can be explained by a simple example, the Crate of Apples. A farm stand sold a crate of apples last year for $100. Costs have gone up. Today the same size crate of apples sells for $110. Farm stand revenues increased 10%, but the amount of business volume did not increase. Volume of sales is still one crate of apples. All the increase in revenue was inflation.
The $41 billion increase in construction spending from $1.266 trillion in 2017 to $1.307 trillion in 2018 is a 3.3% increase. However, construction inflation for that period averaged 4.7%. Construction inflation adds only cost, not volume, to the amount of work. Construction spending is measured in current dollars, actual dollars spent within the year in the value that year. Construction volume is measured in constant dollars, adjusted for inflation, so any and all years can be compared to each other.
Real construction volume adjusted for inflation actually decreased 1.4% from 2017 to 2018.
Total Construction volume, after accounting for inflation, has been down for five of the last six quarters. Construction volume peaked from Q1 2017 to Q1 2018, is now down 6% from the 2018 peak.
Construction volume is not directly reported. It is not a commonly referenced industry measure reported in the news. But it is a more important indicator of activity in the industry than spending. Volume is found only through analysis of spending and inflation data.
Another common misrepresentation using spending data relates to jobs growth. Jobs growth is often compared to spending growth where a 3% to 4% increase in jobs from year to year is substantiated if we have a similar 3% to 4% growth in spending. However, current $ spending is not yet adjusted for inflation and does not represent growth in real volume of work. Jobs must be compared to volume. Real volume increases are represented by constant $, or construction spending adjusted for inflation.
In the last 2 years jobs have increased by about 8% but real construction volume has decreased by about 6%. In recent years, construction volume has not supported jobs growth.
Construction Starts Predict Changes in Spending
Two very important criteria must be known about new construction starts in order to properly predict spending.
1st – To predict spending from new starts, the starts data must be spread over time using an appropriate cash flow curve. A simple illustrative spending pattern for nonresidential buildings starts, or a typical cash flow curve, for total starts within a year is: 20% of the revenue gets spent in the 1st year, 50% in the 2nd year and 30% in the 3rd year. This shows predicting spending in any given year is dependent on several previous years of starts.
Multi-billion $ highway projects, manufacturing facilities, power projects and transportation terminals often have much longer duration cash flow curves. In other words, if your intent is to predict construction spending in 2019, you need to know what starts were at a minimum in 2017 and 2018, and in many cases back to 2016 or even 2015.
Starts spread over time with cash flow curves predict spending.
2nd – For new construction starts survey sample to be used to compare to itself from year to year to predict growth in spending, sample size must be known. Starts data captures a share of the total market or a portion of all construction, on average about 60% of all construction. The easiest way to see this is compare total construction starts to total spending. Starts from 2016 to 2019 range from $750 billion to $800 billion while spending in those years ranges from $1,200 billion to $1,300 billion. From this we see starts capture a share of the total market. Any time a survey of a total population is used to forecast the total, the survey share of total must be considered. If sample size is not constant, the apparent growth in starts does not all reflect real growth in spending.
Amusement/Recreation is an example that shows starts that generate a predicted cash flow pretty well balanced with actual spending from year to year. The share of starts in the survey is fairly consistent never varying from 63% to 66% from year to year.
Office provides an example of variation in sample share of total. Starts generate predicted cash flow that increased substantially from 49% to 57% and remained higher compared to actual spending.
Office starts increased from $21 billion in 2013 to $50 billion in 2019. This data generates the predicted cash flow that is compared to actual spending. To predict total spending from unadjusted starts, unadjusted starts CF$ are factored up (divided by) share of total market. If the share of market captured in the survey remained constant then the predicted spending would remain close to 50%.
CF$ Predicted/Actual shows that Cash Flow Share of actual spending was 48%-50% for several years but then jumped to 56%-57%. The predicted cash flow generated from the increase in starts is not entirely representative of an increase in spending but represents the combined value of the expected increase in spending and an increase in share of market data captured.
Starts cash flow and starts survey share of total spending are never directly known or published. These factors are found only through analysis of the data.
The Educational market data shows a similar situation as Office data. Starts generate predicted cash flow that increased substantially compared to actual spending.
Starts data generate predicted cash flow to forecast spending. This requires tracking share of total market captured in the starts survey data to account for any growth in the market share captured vs growth in predicted spending.
What if there were no new construction starts beyond today?
What if the last new construction starts recorded for May (released by Dodge June 21) were the last to be posted and once those projects reached completion there would be no more work?
Of course this is a totally unlikely scenario, but deleting all future predicted starts allows to perform an important test. All the construction starts recorded as of today make up the backlog, and eventually that backlog will run out. So, if the new starts spigot was turned off today, how much spending would remain for 2019, 2020 and beyond? (For use later, new construction starts recorded through May generally equal an average of 40% of all starts expected each year).
The questions then are: How dependent is the spending forecast on construction backlog? How dependent is the construction spending forecast on new construction starts? What magnitude of miscalculation in the new starts forecast would be imparted to the spending forecast?
Single-family residential projects can take as little as 6 to 9 months to reach completion, multi-family perhaps twice as long. For the average nonresidential building, completion would be reached in about 24 months, but some large industrial projects will take three years or more. For some of the airport, highway and rail expansion mega-projects, the cash flow schedule of spending will take four to eight years to reach completion.
An average of ten years of monthly cash flows produces an average spending schedule for the various construction market sectors. Recognize that starts are posted every month, so January starts have twelve months of spending in the 1st year while projects that start in December have only one month of spending in the 1st year.
Residential project starts net about 65% of money spent in the 1st year, the year started, 30% spent in the following year and 5% spent in the third year, or 65-30-5. Although each type of nonresidential work has a more specific cash flow schedule, the average for nonresidential buildings is 20% spent in the year started, 50% in the second year and 30% in the third year, or 20-50-30. Very long duration infrastructure projects have a spending distribution on average that looks like 15-30-30-15-10.
Residential projects have the shortest schedule to completion. Work flow needs continual replenishment from new starts to support spending. The amount of work in backlog today would support only two thirds of anticipated 2019 spending and less than 10% of 2020 spending.
All Nonresidential buildings type currently have enough work in backlog to support 90%-93% of the total forecast spending in 2019. Current backlog would support only 50% of the total spending forecast for 2020. There’s only enough to support 10%-20% in 2021.
Power and Highway backlog as of today would support 95% of the total forecast spending in 2019 and 70%+ in 2020. Because these are long duration projects, there is enough in backlog today to support 40% of spending in 2021.
That’s a lot of good facts, but how can we use that information to perform an important test?
Let’s use the average nonresidential building for an example. For this example, let’s try to determine the validity of our 2019 forecast based on what we have in backlog today. New starts through May is about 40% of total starts expected in the year. Backlog through May supports 92% of spending in the current year. Spending in any given month has cash flow from an average of the previous 24 months of project starts, so the average of large numbers reduces potential error from backlog. The validity of our annual spending forecast is dependent on whether or not we correctly predicted the remaining 60% of starts for the year, and those starts support 8% of the spending forecast.
Therefore if we incorrectly forecast the remaining 60% of starts by 25%, then we incorrectly forecast total annual spending by 25% x 8% = 2%.
For the 2020 forecast, the math gets just a little more complicated. Remember we stated earlier that the typical spending schedule for nonresidential buildings is 20-50-30. So 20% of 2020 spending comes from new starts in 2020. Only 80% of 2020 spending comes from work in backlog at the start of the year. Based on what we have in backlog today, new starts through May 2019 supports 50% of 2020 spending. We are dependent on the expected new starts in 2019 to get us up to 80% of the expected spending in 2020.
We are expecting 60% more in starts in 2019 and that will support the currently missing 30% of 2020 spending. If we incorrectly forecast the remaining 60% of starts by 25%, then we incorrectly forecast total annual spending for 2020 by 25% x 30% = 7.5%.
Also for 2020, since 20% of all spending within the year comes from new starts within the year, if we incorrectly forecast 2020 new starts by 25%, then we incorrectly forecast total annual spending for 2020 by 25% x 20% = 5%.
I’ve posed this scenario by asking what would happen if we incorrectly forecast the remaining starts by an error of 25%. That would be a huge error, not very likely to occur. I’ve been tracking Dodge Data & Analytics construction starts for more than 10 years and have seen enough data to expect that by mid-year the unanticipated error in forecast starts for the end of the year might be more on the order of 5% to 10%, not 25%. And in fact, historically, revisions to year end starts data is usually UP, not down.
So, by deleting all remaining forecast starts data, we see the spending forecast based on cash flow of new starts would require a very large error in the starts forecast to translate into a large error in the spending forecast. If we apply a more reasonable and yet still conservative error of 10% in all projections of future starts, the forecast for 2019 spending would be off by less than 1% and the forecast for 2020 off by a total of 5%.
Construction Analytics 2019 Construction Economic Forecast – Nonresidential
This Dec. 2018 Construction Economic Forecast analysis addresses New Construction Starts, Inflation, Cash Flow or distribution of construction work over time, Annual Backlog and Spending. New Starts is new work entering Backlog. Cash Flow gives the pattern of Spending. Inflation differentiates between Revenue and Volume. Backlog, which can be referenced to assess expected future Volume and Spending, provides an indication of when Volume occurs or in what year Revenues occur. Starts data is from Dodge Data & Analytics. Spending data is from the U.S. Census Bureau. Jobs data is from the Bureau of Labor Statistics. Inflation data is from the source labeled. Cash flow, Backlog and Inflation forecast data are developed internally. All data in this report is national level data. All forecast data is by Construction Analytics.
NOTE 12-6-18: Dodge Data and Analytics new construction starts for October, released 11-20-18, reached the 2nd highest seasonally adjusted annual rate ever, 2nd only to June 2018. Most spending from these new starts will occur in 2020. This will increase the 2020 nonresidential buildings spending forecast, with the largest increase in manufacturing. Construction Starts for October, the Dodge end-of-year report and October spending, all released between 11-21-18 and 12-3-18 significantly alter this analysis. The biggest changes reduced residential spending for the next two years. See the 2019 Construction Economic Forecast – Summary for the residential analysis.
This analysis was edited 12-6-18 to include that most recent starts data and the U S Census October spending data.
For a fully formatted PDF of this Nonresidential report 2019 Construct Econ Forecast – NONRES – Dec 2018 RVSD 12-6-18
Total of All construction spending is forecast to increase 6% to $1.321 trillion in 2018 and 1.5% to $1.341 trillion in 2019. Spending in 2020 is forecast to reach $1.426 trillion.
Nonresidential Buildings construction spending is forecast to increase 6% to $444 billion in 2018, 0% to $443 billion in 2019 and 9% to $482 billion in 2020. The forecast for 2019 will be supported by Office (which includes data centers) and Amusement/Recreation but there is downward pressure from slowdowns or timing of cash flow in Manufacturing, Lodging, Healthcare and Educational. Educational, Healthcare, Recreation, Office and Manufacturing all support growth in 2020.
Residential construction spending for 2018 was recently revised down and starts for 2019 are expected flat to down slightly. The forecast is now for an increase of 5.6% to $562 billion in 2018, 0.5% to $564 billion in 2019 and 2.3% to $577 billion in 2020. Although residential spending is still increasing, growth has slowed to less than inflation. Real volume after inflation is declining.
Nonbuilding Infrastructure construction spending is forecast to increase 7.2% to $316 billion in 2018, 5.7% to $334 billion in 2019 and 10.1% to $368 billion in 2020. Transportation spending provides strong growth for the next three years from record new starts in 2017 and the 2nd best year of starts in 2018. Public Works had strong growth in 2018 starts and Highway starts hit a new high in 2018.
In July of the following year the spending data for the previous two years gets revised. Those revisions are always up, although some markets may increase while others decrease. So, even though the current forecast for 2018 is $1,328 trillion, a gain of 6.5%, that will most likely increase.
Dodge Data construction starts are initially anticipated to finish 2018 flat compared to 2017. However, starts are always revised upward in the following year. I expect revisions will show 2018 starts increased by 4% over 2017. Even with revisions, 2018 starts will post the slowest growth since 2011. Starts increased 84% in the period 2012-2017, residential 150% and nonresidential buildings 80%. This forecast includes only a total of 10% growth for the 3-year period 2018-2020.
Starting backlog, currently at an all-time high, increased on average 10%/year the last three years. For 2019 starting backlog is forecast up 10% over 2018. 80% of all Nonresidential spending within the year will be generated from projects in starting backlog. Due to long duration jobs, 2019 nonresidential buildings starting backlog is up 50% in the last 4 years. Current indications are that 2019 backlog will be up 6%-8% across all sectors.
Construction Inflation Indices
Outside of recession years, nonresidential buildings construction spending year over year growth dropped below 4% only SIX times in 50 years. The long-term average inflation is 3.75%. Every year that spending dropped below 4% growth, nonresidential buildings real volume declined.
Construction Analytics Nonresidential buildings inflation forecast for 2018 is 4.9%. Current reliable inflation forecasts range from 4.7% to 5.6%. Inflation in this sector has been at 4% or higher the last four years.
Anticipate national average construction inflation for nonresidential buildings for 2018 and 2019, including steel tariff impact, of 4.25% to 5.5%, rather than the long-term growth average of 4%. Adjust for any other yet unknown tariffs that may hit after Jan 1, 2019.
In the following plot, Construction Analytics Building Cost Index annual percent change for nonresidential buildings is plotted as a line against a bar chart background of the range of all other nonresidential building inflation indices. Usually the lows are formed by market basket input indices while the highs are formed by other selling price indices.
Non-building Infrastructure indices are far more market specific than any other type of index. Reference specific Infrastructure indices rather than any average.
These links point to comprehensive coverage of the topic inflation and are recommended reading.
New Construction Starts
All construction starts data in this report references Dodge Data & Analytics Starts Data.
For nonresidential buildings, approximately 20% of the spending occurs in the year started, 50% in the next year, 25% in the third year and only 5% in the fourth year or later year. This means that nonresidential spending growth in 2019 is still being affected by starts from 2016.
The following plot show the 3-month moving average and trend line of starts for Nonresidential Buildings. Starts can be erratic from month to month. The trend line gives a better impression of how starts impact spending. It is the rate of change in starts cash flows that provides a predicting tool for spending.
Starts are sometimes misinterpreted in common industry forecasting articles. Starts dollar values represent a survey of about 50% to 60% of industry activity, therefore Starts dollar values cannot ever be used directly to indicate the volume of spending. Also, Starts do not directly indicate changes in spending per month or per year. Only by including an expected duration for all Starts and producing a forecast Cash Flow from Starts data can the expected pattern of spending be developed. Finally, it is the rate of change in Starts Cash Flows that gives an indication of the rate of change in spending.
Starts is a survey sample of a portion of all construction, on average about 50% to 60% of all construction. This can introduce potential error when using starts to predict spending. In any survey, if sample size remains constant, let’s say at 50% of population, but survey response increases 5%/year, then output of the population should increase at 5%/year. However, if survey response increases at 5%/year but sample size is increasing at 3%/year then output of the population should increase at only 2%/year.
If starts survey sample size varies from year to year, it’s possible some of the anticipated spending growth reported by new starts may not represent growth in real volume of future work but could simply represent a change in sample size. Potential significant variations in sample size are seen in the data and may cause errors in the forecast. The detail of Education spending provides an example.
Nonresidential Buildings starting backlog at the beginning of 2018 reached an all-time high. For nonresidential buildings this backlog will contribute spending until the end of 2021. Starting Backlog for 2019 is forecast to increase 8%. For purposes of this analysis, I’ve set only moderate or low increases in starts for 2020 and 2021, so this forecast may hold down the future backlog and spending forecast. However, backlog leading into 2019 is up 70% in 5 years.
Starting Backlog is the Estimate-to-Complete (ETC) value of all projects under contract at the beginning of a period. Projects in starting backlog could have started last month or last year or several years ago.
- 75%-80% of all Nonresidential Buildings spending within the year will be generated from projects in starting backlog.
- 80%-85% of all Non-Building Infrastructure spending within the year will be generated from projects in starting backlog.
Non-building Infrastructure starting backlog at the beginning of 2018 reached an all-time high. Some of this is very long-term work that will contribute spending until the end of 2025. In fact, more than half of all spending in 2019 comes from projects that started prior to Jan 2018. 2019 Backlog is forecast to increase 10%. Backlog is up 45% in 5 years but is up 50% in just the last 3 years.
Simply referencing total new starts or backlog does not give the complete picture of spending within the next calendar year. Projects, from start to completion, can have significantly different duration. An office building could have a duration of 18 to 24 months and a billion-dollar infrastructure project could have a duration of 3 to 4 years. New starts within any given year could contribute spending spread out over several years. Cash flow totals of all jobs can vary considerably from month to month, are not only driven by new jobs starting but also by old jobs ending, and are heavily dependent on the type, size and duration of jobs.
Although new nonresidential buildings starts increased only 1.6% in 2018 note that cash flow increases by almost 8% due to a very large increase from starting backlog. To a lesser extent the same thing happens in 2019.
Non-building infrastructure starts and cash flow follows a similar pattern. In 2018 and 2019 new starts decline moderately, spending from new starts declines substantially but starting backlog and spending from starting backlog increases are so strong that total cash flow within the year continues to increase.
Nonresidential Buildings Spending
Construction spending is strongly influenced by the pattern of continuing or ending cash flows from the previous two to three years of construction starts. Current month/month, year/year or year-to-date trends in starts often do not indicate the immediate trend in spending.
Nonresidential Buildings construction spending is forecast to increase 5.8% to $444 billion in 2018, fall -0.2% to $443 billion in 2019 and climb 8.9% to $482 billion in 2020. Office (which includes data centers) and Amusement/Rec support the 2019 forecast but there is downward pressure from slowdowns or timing of cash flow in Manufacturing, Lodging, Healthcare and Educational. Educational, Healthcare, Recreation, Office and Manufacturing all support growth in 2020.
Nonresidential buildings construction spending in constant $ (inflation adjusted $ to base 2017) will reach $424 billion in 2018 after hitting a post-recession peak of $431 billion in 2016 and dropping to $419 billion in 2017. In 2019 constant $ spending will total $420 billion. Constant $ spending or real volume growth shows all years from 1996 through 2009 had higher volume than any years 2016-2019. Volume reached a peak near $530 billion in 2000 & 2001 and went over $500 billion again in 2008. In constant $ volume, I don’t see returning to that peak before 2023.
New Starts averaged YOY growth of 11%/year for the last five years. Starts from the last five months of 2017 posted the highest 5mo total in at least seven years, 13% higher than the next best 5mo. The highest and 2nd highest quarters were both within the last 15 months, so both those periods contribute fully to 2018 spending. 2017 starts will support 25% of spending in 2019. Starts are expected to finish 2018 up 5%. 2018 starts will support 50% of spending in 2019 and 20% of spending in 2020.
Backlog in five years 2014-2018 increased 11%/year. It is unusual that Starts and Backlog continue to grow for five years but that growth is not reflected in actual spending. From 2013 to 2018 new starts increased 66% but spending for the period of those starts will increase only 34%. That would seem to indicate a very large volume of work is growing in backlog and spending at some point should boom and remain high for an extended period, but the cash flow model is not in agreement. A possible explanation is the sample survey of new starts has been increasing, so not all the starts growth for five years represents growth in new work. Some of the increase in starts is simply growth in sample size. Educational starts 2012-2015 averaged 50% sample size of total spending. In 2016-2018 the average sample size vs spending was 60%.
Spending is now at a post-recession high. Spending increased 6%/year for 2015, 2016 and 2018, while 2017 increased only 1%. 2017 and 2018 are still subject to revision. Expect to see growth level off until mid-2019. Leveling at post-recession high is not a bad thing. A build-up of backlog is indicating that spending should increase substantially, but a disconnect in the analysis was noted above. Spending growth increases again in 2020.
At peak, educational represented 30% of all nonresidential buildings spending. Now it’s only 22%. That’s expected to increase slightly for the next three years.
Educational construction spending is forecast to reach $96 billion in 2018, $93 billion in 2019 and $103 billion in 2020.
Starts are at an all-time high, up almost 40% in the last 5 years. Some longer duration projects push a substantial amount of spending out to 2020.
Backlog increased 11% for 2017 and 8% for 2018. Backlog has been increasing unevenly and grew 30% in 4 years. Backlog increases 3% to start 2019 but is not indicating spending growth in 2019. Cash flow from backlog is indicating spending growth in 2020.
Spending has been very slow to recover, experiencing declines as recently as 2013 and 2014, hitting an 8 year low in 2014, when all other nonresidential building markets had already returned to growth. 2017 posted a gain of 4.4% but then 2018 gained less than 1%. Backlog is increasing but real spending gains won’t materialize until 2020.
Like Educational, backlog growth has been exceeding spending growth for the last few years. That would indicate spending at some point may boom and remain high for an extended period. Cash flow models indicate this may occur in 2020. Other possible explanations are; starts are overstated; cash flow curves (average 28mo) are too short in duration; projects got canceled after starts were recorded; large spending revisions could get posted in the future.
Healthcare construction spending for 2018 is forecast to finish at $42 billion, an increase of only 0.7% over 2017. Considering 4% inflation, Healthcare real volume has declined every year since 2012 with exception of 2017 which would have been flat. It will decline again in 2019 with a forecast -2.7% decline in spending. 2020 realizes the 1st big spending increase in 8 years, +14% to $47 billion.
Starts are up 13% in 2018. Although down 1% in 2017, starts increased at an average rate of 15%/yr. from 2013 through 2017. Within the past 15 months there have been five billion-dollar project starts.
Starting backlog increased 20%/yr for the last four years while spending was increasing at a rate of 10%/year. This means backlog should continue to support increased spending at least for the next few years.
Spending hit an 8 year low in 2013 but we’ve had 3 years of excellent growth of 10%/yr or more since then. 2017 spending increased only 7% and 2018 11%, but cash flow is indicating a 12% increase for 2019. This market is only 5% of nonresidential buildings spending.
Amusement/Recreation construction spending for 2018 is forecast to reach $28 billion, an increase of 12% over 2017. 2019 is forecast to increase 12% to $31 billion.
Commercial/Retail starts have been increasing every year since 2010 but starts in 2018 are flat vs 2017 Starts are at a peak but after 5 years of 15%-20% growth/year are up only 4% in the last two years.
Commercial starts are seeing strong gains from distribution centers (warehouses which are in commercial spending). The decline in retail stores is being hidden by the increase in warehouses, which are at an all-time high. Stores are down 10% from the peak in 2016. Warehouses are still up only 4% in 2018 but increased 500% from 2010 to 2017.
In 2010, Warehouse starts were only 1/3 of Store new starts. In 2018, Warehouse starts are 25% greater than Store starts. Warehouse starts have increased between 20%-40%/year for seven years and are now five times greater than in 2010. See this Bloomberg article Warehouses Are Now Worth More Than Offices, Thanks to Amazon
Some big projects from a period of strong new starts growth are ending. This will slow spending after 7 years of strong growth. 2018 backlog still produces a spending increase which may finish close to +5%, but forecast shows spending slows even more to only 2% in 2019 and less than 1% in 2020.
The biggest change in Commercial/Retail in the last few years is that backlog is now more heavily weighted with warehouse projects than store projects. The mix has shifted from 60/40 stores in 2014-2015 to 55/45 warehouses in 2018-2019.
Spending dropped from the high of $90 billion in 2007 to $40 billion in 2010. It has been growing steadily since reaching bottom in early 2011 and has recovered to an annual total rate of $92 billion in 2018. Spending increased an average of 13%/year for six years from 2012 through 2017. Spending growth will be flat in 2019 and 2020 but we are currently near the all-time high. It is worth noting that the $92 billion in 2018 dollars after accounting for inflation is still 30% lower than the $90 billion of spending in 2007.
Commercial/Retail construction spending is forecast to reach $92 billion in 2018, $91 billion in 2019 and $90 billion in 2020, flat to no growth after seven strong years.
Starts finished 2018 up 8%. In 2016 starts were up 30% and had reached similar too highs in 1998 and 2006-2007. Starts have been increasing since 2010 with the strongest growth period 2013-2016, up 25%/year. Although the rate of growth slowed in 2017 and 2018, the total amount of starts is at an all-time high. In the last 12 months there are no less than a dozen project starts valued each at over $500 million, a few of those over $1 billion. That high-volume period of starts will elevate spending through 2019 and well into 2020. Data centers are included in Office.
Backlog for 2017 was the highest in at least 8 years, more than double at the start of 2014 when the current growth cycle of office construction spending began. For 2018, backlog reached a new high, up 25% over 2017. Starting backlog for 2019, up 19%, is three times what it was just five years ago. Office starting backlog 2017-2019 increased an average of 20%/year. Backlog growth should support strong spending into 2020.
Growth of only 1% in starts for 2019 and 3% increase for 2020 keeps office starts near the all-time high. Even with low growth in new starts for the next two years, the amount of work in backlog from starts on record provides growth in spending for the next three years.
Spending increased by 20%/year from 2013 to 2016, but in 2017 it turned to a 1% decline. That was unusual and unexpected since 2016 starts and 2017 backlog had both reached 10-year highs. Possible explanations might be: a very large number of projects were canceled or delayed; potential revisions to 2017 Office spending may still be pending (In July every year, the previous two years of spending gets revised); but highly probable is the sample size of starts increased dramatically in 2016 and the 30% increase in starts was not all growth in real volume but was partially just a change in sample size, therefore the spending forecast may have been significantly overstated.
Again, it is worth noting that spending in 2018, which for the first time returned to the previous highs posted in 2008, once adjusted for inflation is still about 25% lower in real volume than 2008.
Office construction spending is forecast to reach $74 billion in 2018, $79 billion in 2019 and $84 billion in 2020.
Lodging posted a new high for starts in 2018, up 8% over 2017. For the period 2011-2016 starts averaged over 30%/year growth for six years. In 2017, starts declined 4% but that remained near the 2016 high. Now with a gain in 2018, those three years average very evenly. Peak starts were in 2016.
Starting backlog averaged increases of 30%/yr. from 2015 to 2017. Lodging starting backlog jumped from $7 billion/yr. in 2014 to $15 billion/yr. in 2018. It has supported similar spending growth. Lodging projects have relatively short duration and timing of starts within the year is important to spending and next-year starting backlog. Compared to most other types of nonresidential buildings, a greater than average percentage of lodging spending occurs within the year started. So, movement in starts has a greater impact on spending within the year.
Lodging spending recorded the largest drop of any market, falling 75% from $36 billion in 2008 to $9 billion in 2011. However, it also recorded the strongest rebound of any market, climbing 20% to 30% per year for the 5-years 2012-2016. In 2011, Lodging dropped to only 3% of total sector spending. It rebounded to 7% in 2017. Lodging actual spending increased 12% in 2018. It’s still not back to the previous high of $36 billion in 2008. Beyond 2018, spending will decline, but this is after 6 years of growth totaling 300%.
Lodging construction spending for 2018 is forecast to reach $32 billion, an increase of 12% over 2017. Spending is forecast at $31 billion for 2019 and $32 billion for 2020.
Religious and Public Safety
Spending of $11-$12 billion/year represents only 2.5% of total nonresidential building spending. In 2008-2009 it was 5% of the total. The religious building market has been declining since 2002 and is down 55% since then. Public Safety peaked in 2009 and has declined every year through 2017, down 40% from the peak. In 2018, public safety spending is increasing.
I don’t track starts or backlog for these markets. I do track monthly spending and carry a forecast in the Table of Construction Spending classified as Other Nonres Buildings.
Religious and Public Safety currently amounts to $12 billion/year. A 10% change in spending of $1.2 billion in a year would amount to only 0.2% change in all nonresidential buildings spending. This category doesn’t often change by 10% yr/yr, so it’s affect is very small.
Manufacturing reached record high starts in 2014 and record spending in 2015, posting a 100% increase in new starts in 2014 that drove starting backlog and spending to new highs in 2015 and 2016. New starts declined 20%-30%/year for the next two years after the high in 2014 but then 2017 starts increased 27%. Now 2018 starts have increased by 18%, yet that is still 15% lower than 2014.
Starts in June came in at four times the average of all monthly starts in the last three years. October came in at three times the average. Those two months would add up to more than half of annual starts for any of the last three years. Some of these projects will still be contributing to spending in 2023.
Starting Backlog remained equally high in 2015 and 2016, but then dropped 17% in 2017. Backlog dropped 17% in 2017 and actual spending dropped 13%. That was expected. What was unexpected is that 2017 posted another very strong year of new starts, up 27%. This will support a spending rebound in the future but not before a temporary drop in mid-year 2019.
Spending was forecast to fall in 2017 after peaking in 2015 from massive growth in new starts in 2014. Based on cash flows from starts, from April 2016 through the end of 2017 spending was expected to decline in 17 of 21 months. It did decline in 14 of those months. Over the next 30 months there are only six months have a forecast to decline, all of those between March and September 2019, all caused by uneven cash flows from very large projects either ending or pushing spending out to future years. This will hold down total spending in 2019. Although backlog for 2019 is up 40%, much of the cash flow from that will occur in 2020.
Manufacturing construction spending is forecast to reach $67 billion in 2018, $65 billion in 2019 and then jump 25% to $82 billion in 2020. Given the growth in backlog and some very long duration projects started recently, spending growth may increase again in 2021.
Non-building Infrastructure Spending
Non-building Infrastructure construction spending is forecast to increase 7.2% to $316 billion in 2018, 5.5% to $334 billion in 2019 and 9.9% to $367 billion in 2020. The forecast growth for 2019 will be supported by Transportation and Public Works but will be held down somewhat by Highway. Transportation terminals and rail project starts both increased more than 100% in 2017 and both are long duration projects types that will contribute spending for several years. Environmental Public Works project starts increased 20% in 2018 and boost spending in 2019 and 2020.
Non-building Infrastructure constant $ volume reached a high of $309 billion in 2015 and peaked at the all-time high of $311 billion in 2016, but then dropped to $295 billion in 2017. 2018 saw a return to $303 billion and 2019 is projected to reach $309 billion. Only twice before, 2008 and 2009, did Infrastructure exceed $300 billion. Constant $ spending or real volume growth has been within +/- 3% for the last 5 years.
Non-building Infrastructure spending, always the most volatile sector, in mid-2017 dropped to 2013 lows. However, this short dip was predicted. Cash flow models of Infrastructure starts from the last several years predicted that dips in monthly spending would be caused by uneven project closeouts from projects that started several years ago, particularly in Power and Highway markets.
Current backlog is at an all-time high, up 10%+ each of the last 3 years, and spending is expected to follow the increased cash flows from the elevated backlog. Transportation terminals new starts in 2017 jumped 120%. Rail project starts increased more than 100%. Starting backlog for all transportation work is the highest ever, up 100% in the last two years. Transportation spending is projected to increase 15-20%/year for the next two years.
No future growth is included from infrastructure stimulus and yet 2018 spending is projected to increase by 7%. 2019 and 2020 are forecast to increase 6% to 10%.
Power spending as reported by U.S. Census includes infrastructure for all electric power generation plants and distribution, gas and LNG facilities and all pipelines. In the last year there were more than twenty $billion+ project starts and a dozen more projects valued over $500 million each. In 2015 pipeline starts represented less than 10% of all power starts. In 2018 year-to-date, pipelines are half of all power work started. In three years, pipeline work increased by more than $20 billion or 500%.
Starts, completions and pauses in work cause erratic movement in actual spending. Cash flow may be adversely impacted by very large projects ending or by the delay of large projects that started previously. A multi-billion-dollar nuclear power plant stopped work and large pipeline project delays after the start was recorded have adversely impacted the cash flow forecast. This impacted the spending forecast in 2017, which finished down 5%, 15% below initial projections, and again 2018 will finish 10% below initial projections for 2018 posted back in Nov. 2017.
Although total power starts for 2018 are down 13%, electric / power generation is down 35% but gas/LNG and pipelines starts are up. Starts peaked in 2015-2016, but total in backlog reached a peak in 2018. However, much of this work is very long duration projects, so 2018 backlog will be providing spending at least through 2021. Spending could see 5% gains in 2019 but unless 2019 starts increase 2020 will experience a modest decline. Dodge is predicting 2019 starts will decline 3%.
Power construction spending is forecast to reach $102 billion in 2018, $109 billion in 2019 but then only $107 billion in 2020.
Power spending highlights one of the biggest shortfalls of judging expected performance based on year-to-date change. Notice in the 1st quarter of 2018, spending year-to-date (YTD) was down 8% to 10% from 2017. It is clear now that did not give a good indication of how 2018 would proceed. A better indication is provided by the trend line expected in the current year versus the trend line in the previous year. If they diverge, then early YTD changes will not give a clear indication of expected performance in the current year. An example follows. Note, SAAR data shows performance trend but cumulative NSA$ is needed to get YTD$.
Power posted the highest spending for 2017 early in the year, then declined in the 2nd half. In 2018, the beginning of the year posted the lowest rate of spending for the year, increased through June, then stayed higher in the 2nd half. The YTD percent growth compared to 2017 has been increasing throughout the year. Higher spending in the 2nd half 2018 compared to the lowest values of the year in late 2017 will boost year-to-date spending every month through year end. Although YTD spending through August is up only 2%, I expect the total for the year will finish up 6%. Even if power spending declines 1% per month for the remainder of the year it will still finish up 5% over 2017.
Highway starts hit an all-time high in 2017 and are forecast to climb another 8% in 2018. This model is predicting starts growth will slow or level off after 2018.
Starting backlog increased 30% in the last 3 years and will increase another 14% leading into 2019. This long duration backlog is going to provide for a large increase in spending but not until late 2020 and even more-so into 2021.
Spending in 2018 did not increase in tandem with backlog, because the share of spending within the year from projects that started 1 or 2 years before began to decline. In 2020 and 2021, the share of spending within the year from projects that started 2, 3 and 4 years before is increasing.
Highway construction spending is forecast to reach $92 billion in 2018, $93 billion and then jump to $105 billion in 2020. 2021 may see an increase of 10% in spending.
Transportation starts have two main parts, Terminals and Rail. Some analysts include transportation in nonresidential buildings. That does not account that airports include not only land-side terminals but also air-side runway work and rail includes platforms and all railway right of way work, which includes massive civil engineering structures. About half of all transportation spending is rail work.
Terminals and rail starts reached record high in 2017, both up 120% after a 35% increase in 2016. Spending in 2018 is forecast to finish up more than 20%. Starting Backlog increased 22% in 2017 then jumped 95% in 2018. However, Transportation sample size of new starts potentially increased 30%, far more than any other market. A large portion of the 2017 increase in starts is expected to be change in sample size. This model adjusts 2017 starts down by 20%. Still, most of that backlog spending will occur in future years. Some of the project starts in 2016 and 2017 have an eight-year duration. In the last 24 months there have been sixteen $billion+ new project starts and seven $500million+ new starts.
2018 total starts are 100% higher than any other year prior to 2017. Starting Backlog skyrocketed from $15 billion in 2016 to $55 billion for 2019. Backlog will support spending for several years to come. Keep in mind, when a $4 billion project first gets recorded in starts, that is the general contract. Many subcontracts will be awarded by the general contractor over the next few years.
Based on predicted cash flows from starts, spending is expected to increase at least into mid-2021. 2018-2019-2020 should see increases of 15% to 20%/year. Dodge is forecasting 2019 starts will stay close to the elevated levels of 2017 and 2018. I’m predicting starts in 2019 will decline from 2018 simply due to the huge volume of new work that started in the last two years. Even with that, backlog could set a record high in 2020.
Transportation construction spending is forecast to reach $55 billion in 2018, $62 billion in 2019 and $75 billion in 2020. Given the growth in backlog and some very long duration projects started recently, spending growth may increase again in 2021.
Environmental Public Works
Environmental Public Works includes sewerage projects, Water supply and Conservation, or Dams, water resource and river/harbor projects. New starts for all these type projects declined from 2014 through 2017. Then all showed gains in 2018 and the forecast is more gains in 2019. All of these projects are public spending and saw no real gains in spending from 2010 through 2017. With the projected increases in starts in 2018 and 2019, spending is now forecast to increase the next three years to a new high by 2020.
Public Works construction spending is forecast to grow 9% to reach $43 billion in 2018, $46 billion in 2019 and $56 billion in 2020.
Starts data for communications is not regularly reported. Total starts for the year is always recorded well after year end. A moderate forecast is included for future starts growth the next two years.
Actual spending is erratic, up 10% one year down 3% the next then up 25% followed by 2% growth. 2018 should finish down 1% after a 12% gain in 2017. The forecast shows a 5% decline in 2019 and flat spending into 2020.
Communication construction spending was up 12% in 2017 and finished at $24.8 billion The forecast for 2018 is down 1% to $24.5 billion. Expect $23 billion in 2019 and $23 billion in 2020.
For a PDF of this Nonresidential report 2019 Construct Econ Forecast – NONRES – Dec 2018 RVSD 12-6-18