Two Leading Indicators Say U.S. Construction is Struggling to Break Free

This report showcases two leading indicators of U.S. construction activity, one originating in the public sector, the other in the private sector.

2017-03-02-US-Put-in-Place-Jan-2017

Beginning with the government measure, the U.S. Bureau of the Census publishes put-in-place (PIP) capital spending figures every month. The flow of PIP dollars is meant to mirror progress payments as projects proceed, from foundation work to topping off ceremonies. For example, spending on a $100 million office building will be spread out over two or three years.

Table 1 – which is derived from seasonally adjusted (SA) statistics − shows that grand total PIP construction spending in January of this year was +3.1% compared with the opening month of last year. Such a restrained level of increase, while it does confirm forward momentum, is unexciting nonetheless.

The PIP statistics are calculated in ‘current’ (i.e., not adjusted for inflation) dollars and it is not unusual for their total to approach, or even exceed, +10% year over year, when onsite field work is in full swing.

The +3.1% gain overall was driven far more by residential work (+5.5%) than by nonresidential activity (+1.5%).

The right-hand side of Table 1, however, is most revealing as to where the strengths and weaknesses in construction, by types-of-structure, are to be found.

If the latest three-month versus previous three-month percent change calculation (annualized) exceeds the latest-12-months over prior-12-months calculation, then a check mark is placed in the ‘speeding-up’ column. If the reverse is true, then the check mark goes in the ‘slowing down’ column. (As a corollary, if a negative becomes less negative, that’s also considered to be an instance of ‘speeding up’; or if more negative, the verdict lands on ‘slowing down’).

PIP spending on residential construction has been dramatically speeding up over the last three months (+16.2% compared with +5.1%), which has been a spur to grand total construction as well (+6.9% compared with +4.3%).

But nonresidential PIP spending has softened, from +3.8% to only +1.2%.

There are 16 subcategories of nonresidential construction. Ten of the 16 have slowed over the past three months relative to their 12-month performances. The brakes are being most notably tapped in ‘lodging’ (+9.1% compared with a bullish +25.1%) and ‘office’ work (still strong at +11.0%, but down from an impressive +25.6%).

‘Commercial’ work, which is mainly retail-related, has shifted into a higher gear, going from +11.0% to +26.6%. And ‘educational’ is another large-dollar-volume category (i.e., 7.6% of the total) which has experienced an attention-grabbing jump (from +6.3% to +11.6%) of late.

At the other extreme, ‘manufacturing’ PIP investment has been backsliding in dramatic fashion (from -4.8% in the 12-month comparison to -24.4% in the three-month comparison.)

Table 1: U.S. Put-in-place Construction Investment − January 2017
Based on ‘current’ (i.e., not adjusted for inflation) $s, seasonally adjusted at annual rates (SAAR)

Weighting of type-of-structure category
(% of total $s)
    Year to date
2017/
Year to date
2016
(from monthly averages of SAAR data)
    Latest 12 mons vs. previous 12 mons Latest 3 mons vs. previous 3 mons (annualized) Slowing Down
1 of 3
‘Total’
categories /
10 of 16 subcategories
Speeding Up
2 of 3 ‘Total’
categories /
6 of 16 subcategories
       
       
       
       
       
       
Total Construction 100.0%     3.1%     4.3%   6.9%      
Total Residential 40.8%     5.5%     5.1%   16.2%    
Total Nonresidential 59.2%     1.5%     3.8%   1.2%      
Lodging 2.4%     22.2%     25.1%   9.1%      
Office 6.4%     28.8%     25.6%   11.0%      
Commercial (retail) 6.8%     10.6%     11.0%   26.6%    
Health care 3.5%     6.7%     2.0%   -10.4%      
Educational 7.6%     4.7%     6.3%   11.6%      
Religious 0.3%     -5.7%     1.3%   -14.7%      
Public safety 0.6%     -11.4%     -7.5%   3.1%      
Amusement and recreation 1.9%     9.7%     9.1%   7.5%      
Transportation 3.3%     -11.5%     -6.9%   -5.5%      
Communication 1.8%     -1.5%     -5.3%   50.8%      
Power (electric; oil & gas) 8.2%     2.2%     2.7%   1.3%      
Highway and street 7.4%     -10.1%     0.4%   -6.7%      
Sewage and waste disposal 1.6%     -27.7%     -10.7%   -25.5%      
Water supply 0.9%     -10.8%     -8.6%   -12.7%      
Conservation and development 0.6%     -3.5%     -4.1%   4.6%      
Manufacturing 5.9%     -6.9%     -4.8%   -24.4%      

In the final two columns, if there is no checkmark in the cell, then the type-of-structure category has stayed within 1.0%, up or down.
For the first month of 2017, the year-to-date figure is the same as standalone January.

Data source: Census Bureau / Table: ConstructConnect

Moving on to Graph 1, it features 12-month moving totals of ConstructConnect’s ‘starts’ statistics (i.e., the private sector leading indicator). In concept, a ‘start’ is the same as a groundbreaking. The starts statistics are built-up from individual project values. They are sometimes referred to as ‘lumpy’ because the whole project value is recorded at once.

The starts are an out-front (i.e., leading) indicator for the PIP numbers. Cyclical turning points for starts will occur before they happen for the PIP numbers.

In Graph 1, the trend line for engineering/civil starts, after rising very slightly throughout 2014 and 2015, has been gradually moderating over the past half year or so.

The residential curve has been on a strong upward incline since the beginning of 2012, although it has still not returned to the heights it realized in early 2006.

The nonresidential building slope has been moving higher as well and has managed to exceed its previous peak of mid-2008. It’s worth noting that the trough for nonresidential buildings, in the aftermath of the Great Recession, was not as pronounced as it was for residential.

Both the residential and nonresidential curves, however, have flattened out in recent months.

The plateauing that has occurred for nonresidential buildings has been despite some recent large project initiations, such as arena work in Fort Worth (i.e., an all-purpose facility) and in San Francisco (i.e., a new home court for the NBA’s Golden State Warriors).

Graph 1: ConstructConnect’s 12-month Moving Totals* of U.S. Construction Starts
January 2017
Trend-Graphs-12-month-Moving-Totals-Jan-17
*For example, June 2016 is the sum of the monthly numbers for July 2015 through June 2016.
December numbers are the same as the annual total.
Data source: ConstructConnect.
Chart: ConstructConnect.

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