For the 9th consecutive year, I will be speaking at Advancing Preconstruction. I will be opening the program May 22 to the plenary session with a summary of the current and expected economic conditions affecting everyone involved in construction, all geared towards one word, RISK.

Construction Spending Q1’25 vs Q4’24 notable Q/Q increases: Education, Healthcare, Amusement/Recreation and Communication are all up 2% to 3%. Highway is up+4.9%, Data Centers +5.4%, Warehouse +7.5% and Lodging +8.3%.

Construction Spending for March is down 0.5% from Feb, but that’s because Feb was revised UP by 0.5%. Jan also revised up 0.66%. YTD Total vs Jan-Mar 2024 is up 2.8% YTD. Data Centers vs Jan-Mar 2024 is up 40%.

Construction Spending Q1’25 vs Q4’24 is UP in every category except Residential, Commercial/Retail w/o Warehouse and Manufacturing (Mnfg was expected). Residential and Comm/Rtl are down only a slight 0.2% and 0.4%. Manufacturing is down 4.7% Q1vQ4. This is the beginning of the Manufacturing spending taper as early projects come to an end. I described that taper here. The Manufacturing Spending Taper

Not seeing any major indications in spending due to tariffs yet. Still early in the data (thru Mar) for that.

Construction Jobs increased 11,000 in April. However, hours worked dropped by 0.6%. Total workforce hours worked declined by an equivalent of 50,000 jobs. Jobs are now at 8,316,000, an all-time high. Jobs are up 27k year-to-date, the slowest growth for the 1st 4 months since 2012 (excld 2020). Although hours worked fell in April, total workforce hours worked increased 2.1% over same 4mo 2024. Average yr/yr growth for Jan-Apr hours worked is 3.7% for the last 10 yrs (ex 2020).

J P Morgan expects imports from China to fall 75%-80% in the 2nd half of the year. Total all imports from all sources are expected down 20%. Some products are going to become unavailable.

The U.S. imports about 30 million metric tons, about 30% of total steel used, of all types of steel annually. The U.S. imports about 6 million metric tons of steel pipe annually. Approx 2/3rds of steel pipe used annually in the U.S. is imported. If the U.S. loses its imports of steel pipe, we can’t support as many building projects. Pipe here refers to pipe and tube. That includes things like gas and oil pipelines, water pipe, steel conduit and structural square/rectangular tube sections (Trump’s Wall).

What’s frustrating this week is all the latest construction spending and jobs data just came out, and everyone wants to know, What’s the impact on the forecast?, and none of the data reflects tariff impacts or potential slowdowns. Spending is thru Mar31 and jobs are thru Apr12. Some of the inflation data is 1 to 2 quarters behind.

I am expecting, when I prepare the Midyear Forecast, that spending projections will go down, perhaps 1% to 3%, and inflation projections will go up. Currently, I’m carrying inflation between 4%-5%. Owner’s may slow or even cancel capital expenditures and material prices are broadly expected to increase.

When PPI data is released May12, that will be thru April. But remember, PPI data is domestic products only. So any inflation in the PPI data is domestic suppliers adjusting pricing to reflect pricing similar to expected increases to match imports. We might begin to see our first clues of tariff impacts/demand when the next construction starts data gets released around the end of May. How much in previous starts have been canceled/delayed? We already know of some chip plants and data centers canceled/delayed.

Construction – What to Watch: Cost to build going up; Cost to finance is up; Product availability in question; Product delivery schedule delays; Margins pressured; Small/Midsize firms squeezed; Labor let go/disappearing; Projects in planning, delayed; Project ROI not met; Projects planned, canceled.

I recommended (going back 6 yrs ago, but still relevant today) that every construction cost estimator is going to need to identify in every estimate/budget presented to an owner for every upcoming project, all items subject to price revision due to tariff. If you don’t you stand to lose your already meager profits.

I can’t even begin to know what to tell construction cost estimators to carry in budgets for increased cost due to tariffs and supply issues. Best I could suggest at this time is to carry an agreed allowance (IMO, better than contingencies), which can be visited at a later date and adjusted to actual cost. ‪Contingencies are for unknown, unexpected, unidentified issues. Allowances are described in the basis of estimate for identified cost issues, but at unknown cost amounts. All allowances in any estimate/budget should be identified at conception with intent to revisit at later date to adjust to actual cost. (The most common allowance you may be familiar with is a rock allowance). Identify allowances up front and reach agreement on budgeted cost with all parties. This will make your contract administration go a lot smoother than trying to negotiate how much of the contingency you can use for a cost increase that was foreseen. The only unforeseen here is actual cost.

ABI – DMI – CBI Leading Construction Indicators

With exception of residential, which has short durations and for which backlog is always only about 30%-35% of previous yr revenues, for all other work, never (since 2010) was backlog shown to be less than the previous yr spending. https://edzarenski.com/2021/05/01/abi-dmi-cbi-leading-indicators/

Construction Backlog, all work under contract yet to be put-in-place, usually extends out 2 to 3 years. Backlog changes only IF new starts are greater than spending in the month, backlog goes UP. If new starts are less than spending, backlog goes DOWN. Subtract canceled projects from starts causes backlog to go down, but delays are are just moved out in time, so are still in backlog.

PPI INPUTS Q1 vs avg 2024: to Nonres Bldgs +0.9%, to Residential +1.15%, to Highway +1.0%. All these being near 1% for Q1, if growth is constant, would be near 4% for the year. Big IF! Paving mixtures +11% in Q1, Lumber Plywood +4.5%, Fab Str Steel +0.03%, Fab Str Stl Bridges -1.1%, #2 Diesel Fuel -9.6%, Steel Pipe and Tube -3.85%, Nonferrous Wire and Cable +1.8%, Copper and Brass Mill Shapes +4.7%, Aluminum Mill Shapes +7.5%.

PPI Final Demand 1st 3mo vs avg 2024: Avg Nonres Bldgs +1.3%, Educational +1.6%, Healthcare +2.7%, Roofing Contractor + 2.8%, Avg 4 trades +1.7%. Your monthly reminder, although this index is posted monthly, it is corrected quarterly. April data is the correction month for Q1.

New home construction costs have risen about 3% in the last year, from lumber down 4% to concrete up 6%, per JBREC. The US Census Constant Value Rsdn Index is up 3.5% for the 1st 3 months 2025.

The Biden admin supported the construction $200 billion in new manufacturing facilities that began in 2022 and is now tapering down. It will take a lot of jobs to fill those facilities. But will jobs grow in the current economic environment?

Just about anything that can be considered a leading indicator is pointing down. Layoffs, container ship projected offloads are down and falling, China cut shipping to US, supply chains disrupted, immigrant fears affecting labor. Expect costs up, workload down, labor tight.

I’ve been asked, Why don’t you use AI to develop economic analysis? Artificial Intelligence sometimes gets analysis really wrong. There is some percentage (40%?, 60%?) of end results that AI creates that is literally just made up. If you were to use AI to develop forecasts and analysis of construction data, without having a thorough knowledge of the data and an ability to recognize when it’s meaningful, or garbage, then how would you know when AI is right or wrong. Understand your data well enough to know when your analysis makes sense. For my part, I’d rather spend my time understanding the data and the analysis then to spend it verifying if AI is producing realistic and meaningful output.

Summer is just around the corner. The Hummingbirds returned last week.

Construction Forecast Update May 2025