Tag Archive for 'commercial construction'

Nonresidential Construction Spending Inches Higher

CEU2“The October data suggest nonresidential construction spending could regain a certain degree of momentum during the months ahead, though the long-anticipated acceleration in spending is unlikely to occur until after the first quarter of 2014.” —ABC Chief Economist Anirban Basu.

Spending_12 2Nonresidential construction spending increased 1.6 percent on a monthly basis in October after declining 1.3 percent in September, according to the Dec. 2 release by the U.S. Census Bureau. (This release contained two months of data because of the federal government shutdown.) On a year-over-year basis, nonresidential construction spending is down 0.7 percent through October. Spending totaled $575.563 billion for the month on a seasonally adjusted, annualized basis.

“As expected, construction spending was hindered by a combination of elevated uncertainty and delayed procurement resulting from the government shutdown,” said Associated Builders and Contractors Chief Economist Anirban Basu. “The October data suggest nonresidential construction spending could regain a certain degree of momentum during the months ahead, though the long-anticipated acceleration in spending is unlikely to occur until after the first quarter of 2014.”

Thirteen of 16 nonresidential construction subsectors posted increases in spending in October.

Public safety-related construction spending grew 5.6 percent, but has declined 1.2 percent on a year-over-year basis.

Amusement and recreation-related spending was up 1.8 percent on a monthly basis, but is 1 percent lower than the same time last year.

Conservation and development spending was up 6.7 percent for the month, but is down 7.2 percent for the year.

Lodging spending grew by 1.2 percent on a monthly basis and is up 17.5 percent on a year-over-year basis.

Religious spending grew 2.2 percent for the month, but is down 12.6 percent compared to the same time last year.

Education-related construction spending expanded 8.1 percent for the month, but is down 12.6 percent on a year-over-year basis.

Commercial construction spending increased 2.8 percent in October and is up 4.4 percent on a year-over-year basis.

Water supply spending edged up 1.1 percent for the month and is 14.3 percent higher than the same time last year.

Health care-related construction spending was up 1.8 percent for the month but is down 0.6 percent for the year.

Spending in the following three nonresidential construction subsectors was down in October.

Sewage and waste disposal-related construction spending declined 2.6 percent for the month, but has grown 4.5 percent on an annual basis.

Construction spending in the power category declined 3.7 percent on a monthly basis and is down 15.1 percent for the year.

Communication-related construction spending fell 8.2 percent for the month and is down 16.1 percent on a yearly basis.

To view the previous Spending report, click here

ABC Reports: Nonresidential Construction Spending Down 0.4 Percent In September

The forecast is for subdued construction in the months ahead, with more rapid recovery expected late next year.” —ABC Chief Economist Anirban Basu.

Summary

Despite a flurry of activity in residential construction spending, nonresidential construction spending decreased 0.4 percent in September, with outlays falling to a seasonally adjusted annual rate of $559.4 billion, according to the Nov. 1 construction spending report by the U.S. Commerce Department. Year-over-year, total nonresidential construction spending is up 2.6 percent, slightly higher than inflation.

Private nonresidential construction spending slipped 0.1 percent for the month, but remains 8.8 percent higher than the same time last year. Public nonresidential construction spending decreased 0.8 percent for the month and is 3.6 percent lower than one year ago.

Nonresidential construction subsectors posting the largest decreases in spending for the month include religious, down 6.1 percent; health care, down 4.9 percent; commercial, down 4.5 percent; lodging, down 2.7 percent; and office, down 2.1 percent. Construction subsectors that experienced decreases in spending year-over-year include religious, down 16.8 percent; water supply, down 12.7 percent; conservation and development, down 6.5 percent; and educational, down 3.2 percent.

Six out of sixteen nonresidential construction subsectors posted increases for the month, including communication, up 6.4 percent; manufacturing, up 3.5 percent; amusement and recreation, up 2.8 percent; conservation and development, up 2.8 percent; transportation, up 2.4 percent; and power, up 1.3 percent. One-half of the nonresidential construction subsectors experienced increases in spending on a year-over-year basis, including lodging, up 25 percent; power, up 19.2 percent; transportation, up11percent; and office, up 2.4 percent.

Residential construction spending jumped 2.7 percent for the month and 19.2 percent higher compared to the same time last year. Total construction spending, which encompasses nonresidential and residential spending, was up 0.6 percent for the month and 7.8 percent higher compared to September 2011.

Analysis

“Concerns regarding the fiscal cliff, a slowing global economy and perhaps the November elections became more apparent in September’s construction spending data,” said Associated Builders and Contractors Chief Economist Anirban Basu. “A number of construction segments that were expanding in prior months retreated in September, including healthcare, commercial construction and office.

“It is likely that some members of the developer/owner community are putting their projects on hold in the hope that future months will bring in more policy and economic transparency and stability,” Basu said. “The implication is when various sources of uncertainty are addressed, including issues related to automatic sequestration, Europe and the Middle East, there will be a re-acceleration of nonresidential construction spending.

“Despite economic uncertainty, some construction segments are experiencing increased levels of spending, including manufacturing and power,” said Basu. “In stark contrast, projects closely associated with public sector capital budgets continue to fall.

“In prior months, there was a well-established pattern of private construction spending gains offset by public construction spending losses,” Basu said. “That pattern no longer exists as both private and public construction spending are in decline.

“It is suspected that October will be another month of hesitation among many economic decision-makers that will show lackluster nonresidential construction performance,” said Basu. “The forecast is for subdued construction in the months ahead, with more rapid recovery expected late next year.”

To view the previous Spending report, click here.

ABC Predicts 2012 Will Be A Slow Year for Construction

Associated Builders and Contractors (ABC) today released its 2012 economic forecast for the U.S. commercial and industrial construction industry. “ABC’s analysis of construction trends indicates 2012 will be a year of gradual progress as advances in private construction are partially offset by ongoing declines in publicly financed construction,” said ABC Chief Economist Anirban Basu.

“Nonresidential construction spending is expected to grow 2.4 percent in 2012 following a 2.4 percent decrease in 2011,” Basu said. “The pace of recovery in the nation’s nonresidential construction industry remains soft and 2012 is positioned to be a year of slow gain. The first half of 2012 may be particularly challenging, a reflection of the soft patch in economic activity experienced during much of the first half of 2011.

“ABC’s national Construction Backlog Indicator, which stood at 8.1 months for both the second and third quarters of 2011, is not expected to advance substantially and likely will remain in the vicinity of 8 months of backlog for much of 2012,” said Basu. “However, backlog is one month higher from the same time last year. A backlog of less than 8 months is associated with construction spending declines, while a backlog exceeding 8 months is statistically associated with future construction spending increases. Today’s level of backlog is consistent with flat construction spending.

“Nonresidential building construction employment is expected to increase 0.4 percent in 2012 following lackluster 0.6 percent growth in 2011,” Basu said. “Employers will continue to seek increased productivity among existing workers in order to boost weak industry margins.

“There may be a degree of relief for construction contractors with respect to materials prices.  In 2011, prices for construction inputs rose 7.5 percent,” said Basu. “ABC expects 2012 materials prices will rise 4.7 percent. Despite a sluggish construction recovery, input prices are likely to remain elevated as global investors retain significant ownership in commodities and hedge against risks emerging from Europe, the United States, China and Brazil.

“The direction of the U.S. dollar will play a major role in determining construction input prices in 2012. However, the dollar’s direction is far from obvious,” Basu said. “Although the nation continues to run a large trade deficit, which implies further deterioration in the value of the dollar over time, investors often race to dollar-denominated assets during times of global financial stress. We are in one of those times now, which could keep the dollar inflated in 2012. While this would create a more challenging environment for U.S. exporters, it would likely result in lower construction materials prices.”

Year-to-Date Performance: 2010 – 2011 and ABC’s 2012 Forecast

Indicator

2010

2011*

2012*

% Change

2011-2012

ABC’ s Construction Backlog Indicator (CBI)
National Index (in months)

6.6

7.8

8

2.6%

Construction Employment (thousands, not seasonally adjusted) – U.S. Department of Labor

Nonresidential Building

660

663.9

666.6

0.4%

Residential Building

571.6

559.9

568.3

1.5%

Construction Spending – (millions, seasonally adjusted annual rate) – U.S. Census Bureau
Total Nonresidential

Lodging

$11,329

$8,514

$9,025

6%

Office

$37,573

$34,181

$36,505

6.8%

Commercial

$40,522

$43,447

$46,575

7.2%

Health Care

$39,879

$40,621

$43,871

8.0%

Educational

$88,227

$85,359

$81,945

-4.0%

Power

$78,540

$87,519

$95,396

9.0%

Manufacturing

$38,106

$35,636

$38,487

8.0%

Total – All Industries

$554,915

$541,599

$554,414

2.4%

Private Nonresidential

Lodging

$10,904

$7,976

$8,455

6%

Office

$24,231

$22,315

$24,250

8.7%

Commercial

$37,647

$39,988

$43,050

7.7%

Health Care

$30,316

$29,575

$31,960

8.1%

Educational

$13,356

$13,424

$13,400

-0.2%

Power

$66,601

$75,105

$82,000

9.2%

Manufacturing

$37,478

$34,956

$37,753

8%

Total – All Industries

$261,796

$263,538

$281,836

6.9%

Public  Nonresidential

Office

$13,342

$11,866

$12,255

3.3%

Commercial

$2,876

$3,459

$3,525

1.9%

Health Care

$9,562

$11,046

$11,911

7.8%

Educational

$74,871

$71,935

$68,545

-4.7%

Power

$11,939

$12,414

$13,396

7.9%

Total – All Industries

$293,119

$278,060

$272,578

-2%

Producer Price Index – U.S Department of Labor

Inputs to Construction Industries – Index Value

196.8

211.6

221.5

4.7%

Gross Domestic Product (2005 billions of dollars) – U.S Department of Commerce

Real GDP

3%

1.6%

1.9%

N/A

 *= Data predictions by ABC Chief Economist

“For the most part, 2011 has been disappointing. However, recent economic news has been more positive, including data regarding the gross domestic product (GDP), business investment and exports,” Basu said. “If the U.S. economy continues to progress, eventually this will translate into more vigorous recovery in the nation’s nonresidential construction sector.

“Many prominent forecasters expect GDP to expand less than 3 percent next year. The economic recovery in the United States to date cannot sustain brisk expansion without the participation of real estate and construction activities,” Basu said. “With office vacancy rates still high, job creation still slow and lending still disciplined, 2012 is not positioned to be a year of significant progress in private investment. Public construction spending continues to decline in many communities across the United States.

“ABC anticipates ongoing improvement in the volume of privately financed construction as economic conditions gradually improve and lending institutions become more comfortable lending to deep-pocketed investors operating in stable contexts,” said Basu. “More importantly, certain leading indicators have turned the proverbial corner, including ABC’s Construction Backlog Indicator. This forward-looking measurement has shown slow but steady improvement in the commercial/institutional construction category, presently associated with a backlog of 8.4 months.

“Much of the growth in recent years has emerged from publicly financed projects, including projects related to the U.S. stimulus package passed in February 2009,” Basu said. “With the impact of stimulus-funded projects steadily declining, the U.S. nonresidential construction sector will become increasingly dependent on privately financed projects for growth.

“However, certain segments are better poised for growth than others. Leading the way in recent months has been construction related to the nation’s power industry, which ABC projects to expand 11.4 percent during the course of 2011,” said Basu. “The driving force for the United States appears to be in energy, and the growth of this economic segment has been evident in a number of states, including Texas, Oklahoma, North Dakota and Pennsylvania. ABC expects power construction to continue to lead the way with a projected 9 percent increase in spending in 2012.

“Health care represents another likely candidate for economic expansion. This is true for a number of reasons, including thawing credit markets, the nation’s demographics and health care reform, which will continue to increase the number of Americans with insurance and therefore enhance utilization,” Basu said. “Because of this, ABC projects health care construction spending to increase by 8 percent in 2012.

“In many communities across the nation, industrial contractors can be characterized as busy, or at least increasingly occupied, while commercial contractors generally have struggled with overcapacity in 2011,” said Basu. “However, following several years of decreased spending, ABC expects lodging and office construction to progress in 2012.

“Unfortunately, the impact of tight state and local government budgets will continue in 2012,” Basu said. “A number of key categories closely linked to state and local government spending are expected to decrease in 2012, including educational spending, edging down 4 percent. Overall, ABC forecasts public nonresidential construction spending will slip 2 percent in 2012.”

Nonresidential Construction Spending Inches Up in May

“The economic improvement that we had observed through March of this year has translated into better privately financed construction activity.” —ABC Chief Economist Anirban Basu.

Despite a downturn in overall construction spending, private nonresidential construction spending increased 1.2 percent in May, according to the July 1 report by the U.S. Census Bureau. However, private nonresidential construction is down 5.1 percent from the same time last year. Total nonresidential construction spending – which includes both privately and publicly financed construction – was $516.1 billion in May, up 0.1 percent for the month but down 6.9 percent from May 2010.

(See Analysis below)

Eight of the sixteen nonresidential construction subsectors posted increases in spending in May, with the biggest gains experienced in power, up 3.6 percent; sewage and waste disposal, 3.6 percent higher; conservation and development, up 3.5 percent; and lodging, up 2.8 percent. Compared to the same time last year, only three subsectors posted gains, including power construction, up 9.9 percent; conservation and development, 3.8 percent higher; and commercial construction, up 0.1 percent.

In contrast, eight subsectors experienced decreases for the month, including religious construction, down 3.8 percent; communication, 2.6 percent lower; and educational construction down 2.6 percent. The three subsectors with the largest year-over-year losses are religious construction, down 25.5 percent; lodging, down 25.1 percent lower; and manufacturing, down 19.4 percent.

Public nonresidential construction spending slipped 0.8 percent in May and is down 9.1 percent year-over-year. Residential construction spending fell 2.1 percent for the month and is down 6.9 percent from the same time last year. Overall, total construction spending – which includes both nonresidential and residential construction – was down 0.6 percent from April and down 7.1 percent compared to May 2010.

Analysis

“Today’s release is quite revealing,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Clearly, the economic improvement that we had observed through March of this year has translated into better privately financed construction activity. Private nonresidential construction spending expanded in May even as public nonresidential construction declined and the nation’s housing sector continues to swoon.

“One of the most interesting developments is the increase in construction spending related to lodging, arguably the nonresidential construction segment most affected by the economic downturn and associated credit crunch,” said Basu. “Though the year-over-year loss in lodging construction activity is still large, it is falling as monthly data steadily improve.

“Commercial construction is up slightly from the same time last year, another indication of improved private construction activity,” Basu said. “However, it is quite likely that the recent slowing in economic growth will at least temporarily interrupt the private construction recovery currently being observed. Moreover, it is likely that the impact of rising construction materials prices earlier this year are not yet fully reflected in today’s construction spending report, and this also may serve to stall current momentum.

ABC Reports: Construction Backlog Grows 4 Percent 
in First Quarter of 2011

Associated Builders and Contractors (ABC) today reports that its Construction Backlog Indicator (CBI) for the first quarter of 2011 averaged 7.3 months, a 4 percent increase from 7.1 months during the fourth quarter of 2010, and up from 6.1 months, or an increase of 21 percent, from one year ago. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

“While the commercial and industrial construction industry is no longer in deep decline, meaningful recovery remains elusive, with CBI still below levels associated with vigorous nonresidential construction activity,” said Associated Builders and Contractors Chief Economist Anirban Basu. “However, crisis conditions have abated and the indicator is moving in the right direction. CBI is now 33 percent above its historic low point of 5.5 months registered in January 2010.

“The expectation is that the U.S. economy will fall short of growing 3 percent in 2011. At the same time, other macroeconomic factors, including sharp increases in construction materials prices, have the potential to reverse the stabilization in activity that ABC presently observes,” Basu said.

“A decline in backlog associated with the infrastructure category is likely a reflection of an ongoing reduction in the influence of federal stimulus funding in a number of segments, including highway and street, and conservation and development. Given the expected reduction in infrastructure investment by state and local governments, further decline in backlog in the infrastructure category is likely,” said Basu.

“The improvement in commercial construction-related backlog is precisely what ABC observed and forecasted in its previous report, and we anticipate that this segment will continue to show signs of life and growth in the months ahead,” Basu said. “However, given tougher lending standards and high vacancy rates in a number of commercial categories, stakeholders should not anticipate any burst of activity this year.”

Regional Highlights

  • The Northeast, led by recovery in financial services and technology, and the Middle States, led by growth in activity related to natural resources and industrial production, have experienced significant backlog expansion in recent quarters.
  • The South continues to report the lengthiest backlog of any major region, with backlog rising by more than a month, up from 7 months to 8.2 months, over the past two quarters. Over the past four quarters, backlog is up by 1.75 months.
  • Despite recent growth, the Middle States continue to experience the smallest backlog on average, largely because this region of the country experienced the sharpest reduction in backlog during the worst of the economic downturn.

CBI Map of Regions: First Quarter 2010 v. First Quarter 2011

Analysis

“With investment in power generation and natural resource exploration having taken a leadership role in the nation’s economic expansion to date, regions that are more natural resource intensive have generally experienced the largest increases in construction backlog. This helps explain the significant improvement in backlog in the South and Middle States since the fourth quarter of 2009,” said Basu. “In contrast, much of the western United States is associated with disproportionately high unemployment and largest state fiscal shortfalls, which explains the general lack of improvement since the end of 2009.”

Industry Highlights

  • Only one of three major industry segments tracked by ABC experienced an increase in backlog – the commercial construction sector.
  • Backlog in the infrastructure category has declined for three consecutive quarters and is now approaching levels consistent with the pre-federal stimulus period.
  • Backlog in the heavy industrial category has been nearly unchanged over the past three quarters. Slower investment in this category may at least be partially attributable to a surge in construction materials prices, which may have delayed plans for plant expansion in certain contexts.

Analysis

“What CBI indicates is that there is a rotation in construction spending taking place, with infrastructure-related spending slowly slipping as stimulus monies are spent down and commercial construction gradually stabilizing along with the broader economy. This pattern will likely continue going forward, but overall construction volume is positioned to decline over the next several months before stabilizing later this year or sometime in 2012,” Basu said. “If construction materials prices are better behaved going forward, the recovery in commercial and heavy industrial construction may accelerate. However, infrastructure-related construction is largely dependent upon government budgetary decisions and for now the focus remains largely upon government cost-cutting as opposed to accelerating investment.”

Highlights by Company Size

  • During the first quarter of 2011, backlog rose for all categories of firm size.
  • As has been the case for many quarters, the larger the firm, the larger the average backlog.
  • Average backlog for the smallest firms, those with revenues below $30 million per annum, now stands at 6.4 months, the highest quarterly reading on record.

Analysis

“Backlog continues to expand among the smallest, most fragile construction firms. This is largely attributable to the broadening of the construction recovery beyond the infrastructure segment. Backlog may also be stabilizing for this group due to high failure rates among competitors, who correspondingly cede market share to surviving firms. Backlog for firms in the second smallest category, those with revenues between $30 million and $50 million per annum, is roughly unchanged from year-ago levels, suggesting that for many contractors the recovery is far from vigorous,” said Basu. “Interestingly, backlog continues to rise for the largest firms on average despite the gradually diminished impact of federal stimulus spending.”