By: Alex Carrick, Chief Economist on January 17th, 2023
December's Nonresidential Construction Starts +58% M/M, +78% Y/Y, & +33% YTD
Megaprojects are 2022’s Story of the Year
ConstructConnect announced today that December 2022’s volume of construction starts, excluding residential work, was $50.1 billion, an increase of +58.1% compared with November’s figure of $31.7 billion (originally reported as $31.1 billion). After a relatively quiet month for megaproject starts (i.e., those of a billion dollars or more each) in November, they came roaring back in the latest month.
Total nonresidential starts in December 2022 were +77.8% when compared with December 2021. December’s year-to-date starts in all designations, type and/or regional, are the annual figures. The full-year results for nonresidential starts in 2022 were +33.0% (i.e., ahead by a third) compared with full-year 2021.
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The story of construction starts in 2022 was the proliferation of megaprojects. Many of them originated in the manufacturing sector. December offered a prime example. Three of its four mega’ were production plants: a computer chipmaking facility in Arizona; and battery plants in Tennessee and Arizona. The other mega was the laying of an underground electric power cable from Canada to New York.
By quarter, the number and dollar volumes of megaproject starts in 2022 were: 1 for $2.0 billion in Q1; 12 for $44.9 billion in Q2; 9 for $27.5 billion in Q3; and 9 for $30.9 billion in Q4. Last year, 2022, established a new annual record for megaproject starts, 31 such undertakings for a total dollar volume of $105.3 billion. The previous best year was in 2019, when there were 35 megas summing to $79.1 billion.
The recent abundance of mega construction jobs has been a wonderful post-pandemic development. But there’s a potential catch. Their dominance may be obscuring what is happening in the rest of the marketplace. As a percentage of grand total starts dollar-wise, the limited number of megas was 16.2% in Q2; 11.5% in Q3; and 15.1% in Q4. As a percentage of total nonresidential starts, measured in dollar volume, in those same three quarters, the shares claimed by megas ranged from about one-fifth to one-quarter.
At least at an aggregated level, however, the distortion with respect to non-mega starts does not appear to be as severe as one might expect. 2022’s Q4 versus Q3 dollar-volume results for starts were -11.6% for total nonresidential and -14.1% for grand total. Excluding mega projects, the Q4 over Q3 findings were -17.0% for nonresidential and -17.5% for grand total.
To complete the overview picture, the GRAND TOTAL dollar volume (i.e., adding residential to nonresidential activity) of starts in December 2022 was +32.5% m/m, +26.7% y/y, and +16.7% YTD.
Nonresidential Building Starts Shone Brightly in December
There are three major subcategories of total starts: residential, nonresidential building, and heavy engineering/civil. On a percentage-change basis for full years 2022 and 2021, nonresidential building was the winner, +36.7%, with heavy engineering/civil also doing quite well, +26.9%. Only residential struggled, -2.2%.
On a month-to-month basis in December, nonresidential building was again in the captain’s seat, +79.3%. Engineering also distinguished itself nicely, +28.0%. Residential, though, recorded slippage, -5.3%.
TTM Grand Total Starts Back on a Better Track
Other statistics often beloved by analysts are trailing 12-month results, and these are set out for all the various type-of-structure categories in Table 10.
Grand Total TTM starts in December, on a month-to-month basis, swung back into positive territory, +1.7%, after being -1.4% in November. In October, they had been +2.0%.
On a year-over-year basis in December, Grand Total TTM starts were +16.7%, better than in November, +15.6%, but not as upbeat as in October, +18.4%.
Some Nonresidential PIP Categories Show Uplift
Starts compile the total estimated dollar value and square footage of all projects on which ground is broken in any given month. They lead, by nine months to as much as two years, put-in-place statistics, which are analogous to work-in-progress payments as the building of structures proceeds to completion.
PIP numbers cover the universe of construction, new plus all manner of renovation activity, with residential traditionally (i.e., over the decade preceding the pandemic) making up two-fifths (about 40%) of the total and nonresidential, three-fifths (i.e., the bigger portion, at around 60%).
During the past several years, however, there has been a dramatic change in the first- to second-place ordering. In 2021’s full-year PIP results, the residential to nonresidential relationship was about half and half. Through November of 2022, it was residential with the larger slice of the total, at 51.2%. Nonresidential was left with the smaller share, 48.8%.
The January-November 2022 over January-November 2021 total dollar volume of PIP construction was +10.5%. Residential was beating nonresidential, +14.7% YTD to +6.5% YTD. But there were some nonresidential type-of-structure sub-categories that were setting pretty hot paces. Manufacturing was +33.6% YTD, and store/warehouse and water supply/clean-up were both exhibiting double-digit percentage-change gains.
PIP numbers, being more spread out, have smaller peak-over-trough percent-change amplitudes than the starts series. As an additional valuable service for clients and powered by its extensive starts database, ConstructConnect, in partnership with Oxford Economics, a world leader in econometric modeling, has developed put-in-place construction statistics by types of structure for U.S. states, cities, and counties, actuals, and forecasts. ConstructConnect’s PIP numbers are released quarterly and are featured in a separate report.
Construction Walks the Middle Ground Among Sectors
Construction’s share of U.S. total nonfarm employment in the monthly labor market report issued by the Bureau of Labor Statistics is slightly more than 5.0%. To claim its exact proportional share of December’s economywide number-of-jobs increase of +223,000, the figure for construction would have needed to be +11,000. Instead, at an actual level of +28,000, the +11,000 figure was easily surpassed.
The monthly average increase in construction employment throughout 2022 was +19,000, which exceeded 2021’s comparable number of +16,000.
Construction’s not seasonally adjusted unemployment rate in December was 4.4%, up from November’s 3.9%. That’s to be expected due to what’s known as seasonality. The arrival of cold winter weather usually bites into outdoor on-site activity. Compared with December 2021’s NSA U reading of 5.0%, the 4.4% for the latest month looks pretty good.
December’s NSA U rate for construction of 4.4% was a bit higher than the nation’s all-jobs figure of 3.3%. More strikingly, it was well above manufacturing’s minimal reading of 1.9%. Both the manufacturing and construction sectors are in the goods-producing segment of the economy (i.e., as opposed to services-producing), and there is considerable overlap between their labor pools.
In December, the U.S. construction sector managed a slightly faster rate of year-over-year jobs growth, +3.1%, than either the economy as a whole or the manufacturing sector, each at +3.0%. By further way of comparison, however, staffing by the private services-providing sector was +3.3%, and by the leisure and hospitality subset industry, +6.3%.
In other segments of the economy with close ties to construction, the latest (December 2022) year-over-year percentage changes in employment were as follows: oil and gas exploration and development, +9.2%; architectural and engineering design services, +4.9%; machinery and equipment rental and leasing, +4.3%; real estate, +2.4%; cement and concrete product manufacturing, +2.0%; and building materials and supplies dealers, -0.2%. The latter reflects less robust residential prospects, in both the new and renovation fields.
Design services work at architectural and engineering firms leads into later on-site activity. Therefore, the +4.9% jobs jump for the industry would seem to be a positive sign concerning future in-the-field employment. But it may relate more to the extraordinarily high level of backlog built up by firms in the industry, as pointed out in the press release accompanying the latest Architecture Billings Index from the American Institute of Architects. The Billings Index has sunk into a range between 45.0 and 50.0 of late. For the ABI, 50.0 is the demarcation point where a descent below indicates fewer rather than more sales month to month.
Graph 1: Change in Level of U.S. Construction Employment, Month to Month (M/M) −
Total & by Categories - December 2022
Graph 2: U.S. Manufacturing Versus Construction Employment - December 2022 - Seasonally Adjusted (SA) Payroll Data
Graph 3: U.S. Unemployment Rates: All Jobs & Construction - December 2022 (Not Seasonally Adjusted)
Graph 4: U.S. Employment - December 2022 - % Change Y/Y (Seasonally Adjusted)
Graph 5: U.S. Total & Subsectors Y/Y Jobs Change - December 2022 (Seasonally Adjusted)
Graph 6: U.S. Manufacturing Construction Starts - ConstructConnect (12-Month Moving Averages)
Pluses and Minuses Among the Type of Structure Subcategories
The +58.1% month-to-month increase in December’s total nonresidential starts was helped along mightily by the industrial subcategory, +400.9%. Engineering also extended a strong helping hand, +28.0%. Institutional and commercial recorded gains as well, but they were of a modest nature, +9.1% and +2.3%, respectively.
The +77.6% pickup in total nonresidential starts in December 2022 versus December 2021 (y/y) arose, prodigiously, in industrial, +1,096.7%, but it wasn’t the only subcategory to sing sweetly. Engineering was +93.5% and institutional, +18.8%. Commercial, though, hit a sour note relative to its year-before performance, -37.0%.
December’s +33.0% year-to-date advance in total nonresidential starts was thanks to an astonishing improvement in industrial (+203.8%), a good leap forward by engineering (+26.9%), a solid outreach by institutional (+17.6%), and a test-the-waters approach by commercial (+3.3%).
There are two dominant subcategories of total nonresidential starts. When the volumes of roads/highways and schools/colleges are added together, they accounted for 28.2% of 2022’s total nonresidential starts (i.e., shares of 15.0% and 13.2%, respectively).
The three percentage-change metrics for street starts in December 2022 were -22.5% m/m, but +15.0% y/y, and +24.2% YTD. For educational facility starts, the results were all encouraging: +14.9% m/m, +43.3% y/y, and +22.7% YTD. At the various levels of education, and for full-year 2022 versus full-year 2021, the preschool and elementary designation did best, +39.5%, although colleges and universities also made a good showing, +23.3%.
Important beyond roads within the engineering subcategory are water/sewage and bridge starts. The results for the former in December were +23.3% m/m, +62.7% y/y, and +28.8% YTD. For the latter, there were uplifting figures of +26.9% m/m, +75.5% y/y, and +53.2% YTD.
Important beyond schools in institutional are three medical subcategories, i.e., hospitals/clinics, nursing/assisted living, and miscellaneous medical. Their combined starts in December 2022 were all healthy at +32.4% m/m, +16.1% y/y, and +14.4% YTD. On their own, hospital/clinic starts in December were +47.4% m/m, +56.2% y/y, and +27.4% YTD.
Also performing well in full-year 2022 were the police station/fire hall (+43.5% YTD) and prison (+31.6% YTD) subcategories of starts. Courthouses were on the flip side (-27.3% YTD).
Looking at commercial starts and concentrating on full-year 2022 over full-year 2021 results, the hotel/motel subcategory was a standout, +38.8%, but there were also noteworthy jumps by government offices (+14.9%), amusement (+12.9%), and retail/shopping (+9.1%). Two smaller-dollar categories also had good years, laboratories (+82.6%) and parking garages (+25.5%). On the downside were warehouses (-3.2%), private offices (-4.0%), and miscellaneous, which includes transportation terminals (-39.5%).
Finally, there are industrial starts to consider. Its three metrics for December are off the charts: +400.9% m/m, +1096.7% y/y, and +203.8% YTD. Graph 6 illustrates how construction starts in the manufacturing/industrial area launched into orbit in 2022. Fueling the climb were projects in computer chipmaking, the production of electric vehicles and batteries, and energy-related undertakings (e.g., ammonia plants and carbon capture and storage).
Table 2: Construction Starts in Some Additional Type of Structure Subcategories
Texas as a Significant Regional Sidebar
Earlier it was stated that mega project starts were the major story in 2022. Then mention was also made of the exceptional strength coming from the manufacturing sector last year. As a natural outgrowth of those interrelated trends, there’s an interesting regional sidebar on Texas.
Table 3, which ranks states, shows that nonresidential construction starts in first-place Texas in 2022 were nearly double in dollar volume versus 2021, +87.9%. Even more impressive, at a level of $94.2 billion, Texas exceeded second-place California, at $40.2 billion, by a vast margin.
From Table 4, the gap between leading-state Texas and runner-up California was even more extreme in nonresidential building starts, $66.7 billion to $24.8 billion. And the y/y increase managed by Texas was +122.1%.
From Table 5, Texas was again out front, this time in engineering starts ($27.4 billion), but its lead wasn’t quite as exaggerated over the two states that were nearly tied for second, New York ($15.6 billion) and California ($15.4 billion). In engineering starts, it was N.Y. that achieved the near doubling in dollar volume, 2022 over 2021 (+95.0%).
Trend Lines Exude Surprising Optimism
This Industry Snapshot sets out the history, from January 2005 to the present, of 12-month moving ConstructConnect starts averages for a dozen construction types of structures. The moving-average approach is designed to capture trends. (As a technical note, the moving average is graphed in the ending month.)
Almost all the graphs, in their recent-month phases, are trending upwards. Where they are not (e.g., private office buildings), it’s the lingering effects of the pandemic that, for the moment at least, are exerting negative influences more than higher interest rates and worries of recession.
Earnings Gains Keep On Rolling
Tables B-3 and B-8 of the monthly Employment Situation report, from the BLS, record average hourly and average weekly wages for industry sectors. B-3 is for all employees (i.e., including bosses) on nonfarm payrolls. B-8 is for production and nonsupervisory personnel only (i.e., it excludes bosses). For all jobs and construction, there are eight relevant percentage changes to spotlight.
From December 2022’s Table B-3 (including bosses), y/y all-jobs earnings were +4.6% hourly and +3.1% weekly. Construction workers, as a subset of all jobs, did better on both fronts, +5.8% hourly, and +3.9% weekly. From Table B-8 for production and nonsupervisory workers (i.e., excluding bosses), the y/y all-jobs paycheck advances were +5.0% hourly and +4.1% weekly. Again, construction workers overachieved, +6.1% hourly and +4.2% weekly.
Graph 9: Average Hourly Earnings Y/Y - All Jobs & Construction
Graph 10: Average Weekly Earnings Y/Y - All Jobs & Construction
Table 3: 2022 YTD Ranking of Top 20 States by $ Volume of Nonresidential Construction Starts — ConstructConnect®
Table 4: 2022 YTD Ranking of Top 20 States by $ Volume of Nonresidential Building Construction Starts — ConstructConnect®
Table 5: 2022 YTD Ranking of Top 20 States by $ Volume of Heavy Engineering/Civil Construction Starts — ConstructConnect®
Apparent Moderation in Material Cost Increases
This 2022 yearend Industry Snapshot is being written ahead of when December construction material cost information, as captured by the Producer Price Index data set, will be released (Jan 18, 2023). Therefore, the following paragraph is a repeat from a month ago.
November 2022’s y/y results for three building related BLS Producer Price Index series were: (A) construction materials special index, +0.6% (easing back from October’s +3.5%); (B) inputs to new construction index, excluding capital investment, labor, and imports, +9.8% (a small moderation from the previous month’s +10.5%); and (C) final demand construction, designed to capture bid prices, +19.0% (not much different from +19.2% in the period prior).
(A) comes from a data series with a long history, but it’s confined to a limited number of major construction materials. (B) has a shorter history, but it’s more comprehensive in its coverage, although it includes some items (e.g., transportation) that aren’t strictly materials.
Concerning the cost of some major construction material inputs, as revealed in the PPI data set for November 2022 from the BLS, some of the y/y increases have lost their sting. That’s not the case for No. 2 diesel fuel, however, +59.6%. Other noteworthy changes have been: gypsum, +16.6%; cement, +12.9%; ready-mix concrete, +12.3%; hot rolled steel bars, plates, and structural shapes, +7.1%; asphalt, +3.9%; softwood lumber, -3.9%; copper wire and cable, -12.1%; and aluminum mill shapes, -12.7%. There’s an inputs to highways and streets PPI index, and it’s +10.7% y/y.
The value of construction starts each month is derived from ConstructConnect’s database of all active construction projects in the United States. ConstructConnect’s nonresidential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are super-large, has a history of being more volatile than many other leading indicators for the economy.
December 2022’s Grand Total Starts +16.7% YTD
ConstructConnect’s total residential starts in December 2022 were -5.3% m/m, -25.7% y/y, and -2.2% YTD. Multi-family starts were -23.1% m/m and -29.5% y/y, but +20.9% YTD. Single-family starts were +4.3% m/m, but -24.1% y/y and -11.6% YTD.
Including home building with all nonresidential categories, Grand Total starts in December 2022 were +32.5% m/m, +26.7% y/y, and +16.7% YTD. (Remember that, in December, the YTD results are equivalent to the annual results.)
ConstructConnect adopts a research-assigned start date. In concept, a start is equivalent to ground being broken for a project to proceed. If work is abandoned or rebid, the start date is revised to reflect the new information.
What Can Multiple Views of the Market Tell Us About 2023?
Receiving multiple opinions about a situation or condition is often helpful and almost always relieving. Whether it be in healthcare, purchasing a used car, or something else, a variety of opinions from subject matter experts generates more insights than their simple sum. A fuller and richer view allows for better decision-making.
Seeking foresight into the 2023 nonresidential construction market is no different. Overlaying the outlook from Wall Street analysts who granularly study and monitor the publicly-traded firms in the nonresidential construction industry with insights from the American Institute of Architects, the Associated General Contractors of America, and ConstructConnect’s own repository of construction project data, construction leaders can gain a strong and confidence-inspiring view of 2023.
The latest 2023 SME outlooks generally align, with all of them pointing to a tepid new year for the industry. Wall Street’s collective outlook for large publicly-traded firms in the nonresidential space is generally stolid as the industry is expected to take a pause following seven quarters of booming growth ending Q3 2022. Year-on-year revenue growth measured quarterly is expected to decline over the next four quarters from +3% to -6% as the industry comes off a recent revenue peak.
The forward-looking Architecture Billings Index, a product of the AIA, upholds a similar view for the industry based on late 2022 data. The latest (Q4) billings, and design contracts activity readings both fell below 50, indicating shrinking architecture service activity for the first time in nearly two years. Inquiries activity remains above 50, but the latest readings mark a two-year low for the series.
ConstructConnect’s own repository of construction projects and spending data portends a cooling-off period for the industry after a prolonged expansion of the North American construction market. Contemplated construction spending activity across Canada, as measured by the Expansion Index, slowed through the second half of 2022 as readings transitioned from strong double-digit growth to low single-digit growth.
Adjusted for inflation, these rate figures would fall further. In the United States, the construction landscape is signaling moderation, with fewer geographies and verticals providing the same robust readings as were prevalent just six months ago. - Michael Guckes, Senior Economist
Expansion Index Monitors Construction Prospects
A rule of thumb is that nonresidential construction is a lagging indicator among economic measures. Companies are hesitant to undertake capital spending until their personnel needs are rapidly expanding and their office square footage or plant footprints are straining capacity. Plus, it helps if profits are abundant.
The rule doesn’t always hold true, however. For example, under present circumstances, weakness in some (mainly cyclical) areas of construction investment may well be offset by rich veins of large industrial and engineering projects to be unearthed.
Each month, ConstructConnect publishes information on upcoming construction projects at its Expansion Index.
The Expansion Index, for hundreds of cities in the United States and Canada, calculates the ratio, based on dollar volume, of projects in the planning stage, at present, divided by the comparable figure a year ago. The ratio moves above 1.0 when there is currently a larger dollar volume of construction prospects than there was last year at the same time. The ratio sinks below 1.0 when the opposite is the case. The results are set out in interactive maps for both countries.
Click here to download the Construction Industry Snapshot Package - December 2022 PDF.
Click here for the Top 10 Project Starts in the U.S. - December 2022.
Click here for the Nonresidential Construction Starts Trend Graphs - December 2022.
About Alex Carrick, Chief Economist
Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985.