by Alex Carrick

Compared with the earlier April version of ConstuctConnect’s put-in-place (PIP) investment outlook, grand total construction spending has been modified as follows: for 2016, from +9.0% to +5.9% (down); for 2017, from +8.5% to +6.9% (down); and for 2018, from +7.7% to +7.8% (about even).

For residential work, 2016 has been adjusted from +11.8% to +7.6% (down); 2017, from +10.5% to +8.4% (down); and 2018, from +9.5% to +9.8% (up).

And for non-residential, 2016 has gone from +7.2% to +4.8% (down); 2017, from +7.2% to +6.0% (down); and 2018, from +6.5% to +6.4% (about on a par).

The adjustments that have been made in the projections and forecasts largely arise from the shifts occurring in the marketplace, as revealed in accompanying Table 1.

Table 1 is derived from the Census Bureau’s ‘actual’ construction spending figures through June of this year (i.e., through 2016’s first half), for the various type-of-structure categories set out in column 1.

Column three compares year-to-date 2016 versus the same January-to-June period of 2015.

Column four looks at the latest 12-month moving averages versus the previous 12-month moving averages.

And column five is the percentage change in the most recent three-month average relative to the prior three-month average, annualized (i.e., extended from quarter-to-quarter to year-to-year).

The ‘meat’ of the table is to be found in the final two ‘slowing down’ and ‘speeding up’ columns.

When the 3-month performance (column 5) is worse than the 12-month performance (column 4), construction activity in the pertinent type-of-structure category is ‘slowing down’. By the way, it may still be increasing.

When the opposite holds true, the activity level in the type-of-structure category is ‘speeding up’. Or, at least, it is not deteriorating as rapidly.

All three major type-of-structure categories – grand total, total residential and total non-residential – have been slowing down. The same is true for eight of the 16 sub-categories (i.e., half of them).

On the other hand, six of the 16 sub-categories have been speeding up.

Taking into account the weightings of each type-of-structure in the grand total, as shown in column 2, the most significant diminishing performances have been occurring in ‘retail’, ‘educational’ and ‘highway/street’ work.

The notable accelerations in U.S. construction spending have been in ‘lodging’ and ‘power’.

Table 1: U.S. Put-in-place Construction Investment − June, 2016
Based on ‘current’ (i.e., not adjusted for inflation) $s, seasonally adjusted at annual rates (SAAR)

Slowing Speeding
Year to date 2016/ Down Up
Weighting of Year to date 2015 3 of 3 ‘Total’ 0 of 3 ‘Total’
type-of-structure (from monthly Latest 3 mons vs. categories / categories /
category averages of Latest 12 mons vs. previous 3 mons 8 of 16 sub- 6 of 16 sub-
(% of total $s) SAAR data) previous 12 mons (annualized) categories categories
Total Construction 100.0% 6.3% 9.0% -6.9%
Total Residential 39.8% 7.7% 13.0% -10.7%
Total Nonresidential 60.2% 5.4% 6.5% -4.4%
Lodging 2.4% 26.8% 27.8% 34.8%
Office 5.7% 19.8% 20.0% 19.2%
Commercial (retail) 6.2% 9.7% 6.1% -4.5%
Health care 3.6% 1.9% 4.8% 3.0%
Educational 7.5% 6.8% 6.4% -9.9%
Religious 0.3% 10.0% 10.4% 57.6%
Public safety 0.7% -6.1% -6.3% -6.8%
Amusement and recreation 1.9% 9.6% 13.1% 15.3%
Transportation 3.8% -2.7% 2.5% -11.7%
Communication 1.7% 0.7% 13.3% -22.0%
Power (electric; oil & gas) 8.6% 5.6% -0.4% 10.0%
Highway and street 7.8% 5.6% 5.7% -22.0%
Sewage and waste disposal 1.9% -1.9% -1.8% -37.9%
Water supply 1.1% -7.8% -6.9% 1.8%
Conservation and development 0.7% 1.5% 2.8% 17.3%
Manufacturing 6.3% -2.9% 9.5% -10.9%

In the final two columns, if there is no check mark in the cell, then the type-of-structure category has stayed within 1.0%, up or down.

Data source: Census Bureau / Table: ConstructConnect

America’s put-in-place investment figures have been taking some rude hits so far in 2016. That’s not so unusual given that the economy as a whole has not been as buoyant as hoped for when this year’s shiny new calendar was opened on January 1.

Uncertainty about the interest rate environment, energy markets (with oil’s price plunge), the U.K.’s Brexit vote and the stunningly raucous and confusing Presidential election campaign have all sent decision-makers into quandaries concerning their capital spending plans.

But there are numerous indicators pointing to ongoing and potential additional strength for the construction sector.

For starters, the total number of jobs in construction in the U.S. is up almost twice as fast (+3.3% year over year) as for the overall labor market (+1.7%).

New single-family home sales in July climbed back above 600,000 units to their best level in almost nine years, dating back to October 2007. Residential groundbreakings, which have been becalmed for a year, may be about to catch wind again.

The construction sector’s ‘official’ unemployment rate, as calculated by the Bureau of Labor Statistics (BLS), is an extraordinarily tight 4.5%. The jobless rate throughout the U.S. economy is higher at 4.9%. Construction’s out-of-work contingent is almost always greater, and often by a vast degree, than in the labor force altogether.

While weekly and hourly earnings for all workers in America were +2.6% year over year in July, they were considerably better, at +3.5% and +4.6% respectively, for non-supervisory wage-earners in construction.

Also, whereas the increase in the total number of jobs in America in the latest month was +1.7%, in that portion of the retail sector most closely aligned with construction – ‘building materials and supplies dealers’ − the increase in employment was a bullish +4.1%.

There are sub-sector employment increases that are auspicious for the building of specific physical facilities. Year-over-year employment is currently +3.7% in ‘hospitals’; +2.6% in ‘assisted living facilities for the elderly’; +2.7% in ‘elementary and secondary schools’; +2.4% in ‘colleges and universities’; and +2.7% in ‘food services and drinking places’.

Four of the five foregoing employment sub-categories bear close ties to what is termed ‘institutional’ construction. The latter, however, − restaurants and bars − is a portion of ‘retail’ that becomes bundled within ‘commercial’ construction when new space is initiated.

The challenge for many aspects of commercial/retail construction becomes apparent when one discovers that hiring to sell goods and services over the Internet – an occupation requiring little more than a phone and/or a laptop/desktop computer − is +8.1% year over year.

Thankfully, that’s not the whole story. On the plus side, there is often necessary and related ‘warehouse’ space to be leased and/or built.

Still, announcements about store closings continue to grab the headlines. Macy’s has been the latest to shutter outlets.

Finally, the lackluster record of investment spending by manufacturers, this year and next, is consistent with staffing in that sector, -0.3% year over year at this time.

Table 2: U.S. Construction Spending (put-in-place investment)
(billions of “current” $s)

Type of Construction: 2011 2012 2013 2014 2015 2016 2017 2018
Grand Total 788.3 850.5 906.4 993.4 1,098.5 1,162.9 1,243.4 1,340.2
(year versus previous year) 7.9% 6.6% 9.6% 10.6% 5.9% 6.9% 7.8%
Total Residential 252.6 276.1 329.2 375.1 424.7 457.0 495.4 544.0
9.3% 19.3% 13.9% 13.2% 7.6% 8.4% 9.8%
Total Non-residential 535.7 574.4 577.1 618.3 673.8 705.9 748.0 796.2
7.2% 0.5% 7.1% 9.0% 4.8% 6.0% 6.4%
Total Commercial/for Lease 88.0 96.0 104.6 124.9 144.5 165.8 182.8 196.6
9.1% 9.0% 19.4% 15.7% 14.7% 10.3% 7.6%
Lodging 9.1 10.8 13.5 16.1 21.1 26.5 30.6 32.8
18.7% 24.4% 19.6% 30.6% 25.7% 15.6% 7.2%
Office 36.0 37.8 38.0 46.1 56.0 66.9 74.6 79.4
5.0% 0.5% 21.3% 21.7% 19.4% 11.5% 6.4%
Commercial/Retail 42.8 47.3 53.2 62.7 67.4 72.4 77.6 84.4
10.6% 12.3% 18.0% 7.5% 7.4% 7.2% 8.8%
Total Institutional 155.8 157.0 148.1 147.4 157.8 166.0 175.7 186.6
0.7% -5.7% -0.5% 7.1% 5.2% 5.8% 6.2%
Health Care 40.2 42.5 40.7 38.4 40.0 41.3 43.5 46.3
5.8% -4.4% -5.6% 4.0% 3.4% 5.2% 6.5%
Educational 85.0 84.7 79.1 79.7 84.9 89.3 94.3 100.1
-0.4% -6.6% 0.8% 6.5% 5.2% 5.6% 6.2%
Religious 4.2 3.8 3.6 3.2 3.4 3.8 4.2 4.6
-9.3% -6.7% -9.5% 4.0% 12.6% 10.4% 9.8%
Public Safety 10.4 10.4 9.5 9.4 8.9 8.5 8.9 9.4
0.2% -8.9% -1.3% -5.2% -4.4% 4.6% 5.7%
Amusement and Recreation 16.0 15.5 15.2 16.6 20.7 23.1 24.9 26.2
-3.2% -1.8% 9.4% 24.4% 11.8% 7.5% 5.3%
Total Engineering/Civil 251.3 273.7 273.9 288.3 288.1 294.2 310.4 331.1
8.9% 0.1% 5.3% -0.1% 2.1% 5.5% 6.7%
Transportation 34.7 37.9 39.5 41.8 44.8 43.5 45.5 48.3
9.0% 4.2% 5.9% 7.2% -2.9% 4.6% 6.2%
Communication 17.7 16.2 17.8 17.1 19.5 18.8 19.4 20.5
-8.6% 10.0% -3.9% 14.1% -3.5% 3.3% 5.3%
Power 75.2 97.4 93.3 101.2 87.2 93.4 100.6 109.1
29.6% -4.2% 8.5% -13.8% 7.1% 7.7% 8.5%
Highway and Street 79.3 80.5 81.4 84.2 89.9 93.1 97.6 103.1
1.5% 1.0% 3.5% 6.7% 3.6% 4.8% 5.6%
Sewage and Waste Disposal 22.7 22.3 22.4 23.3 25.0 23.9 24.9 26.6
-2.0% 0.7% 4.0% 7.3% -4.5% 4.2% 6.9%
Water Supply 14.2 13.2 13.6 13.3 13.6 13.0 13.5 14.1
-6.7% 2.9% -1.9% 1.6% -3.8% 3.4% 4.4%
Conservation and Development 7.5 6.2 6.0 7.3 8.1 8.4 8.9 9.4
-17.4% -4.2% 22.7% 10.5% 4.2% 5.3% 5.4%
Total Industrial/Manufacturing 40.6 47.7 50.5 57.8 83.4 79.9 79.1 81.9
17.7% 5.9% 14.3% 44.4% -4.2% -1.0% 3.6%

“Current” means not adjusted for inflation.

Data source: U.S. Census Bureau.
Chart: ConstructConnect.