CAN US CONSTRUCTION KEEP BUILDING?

By: Ken Simonson

The US construction industry has been sending very mixed signals for the past year. Investors, lenders and policy officials should keep a close watch on this important and diversified industry, which plays a significant role in every part of the country and affects a host of other sectors.

Construction spending in the United States reached a record high of $1.32 trillion at a seasonally adjusted annual rate in May 2018, the US Census Bureau reported. (The agency measures “value put in place”, or the spending on all types of construction under way in a given month. The data is presented as both not seasonally adjusted and adjusted for the normal variation that occurs over the course of a year due to holidays, weather and other recurring patterns. The latter—seasonally adjusted—numbers are multiplied by 12 to allow ready comparison to full-year totals.)

The readings since May have fluctuated, but the November rate was about 2 percent lower. (Because of the partial shutdown of the federal government during most of January 2019, December data was delayed).

Spending for the first 11 months of 2018 combined topped the comparable 2017 year-to-date figure by 4.5 percent, not seasonally adjusted. However, this gain is less robust than it appears because the numbers are not adjusted for price increases. There is no uniform price index for construction, but an index that measures the price contractors say they would charge to put up five types of nonresidential structures climbed 5.3 percent from November 2017 to November 2018. If this “bid price” index is representative of all construction, it would appear that there has been little change in “real” (inflation-adjusted) construction spending in more than a year.

Yet contractors, on the whole, say they are optimistic about 2019. The Associated General Contractors (AGC) of America, a trade association with 27,000 member companies representing all types of construction other than single-family home building and remodeling, surveys its members each December about their outlook for the year ahead. The 2019 survey, released on January 2, drew 1,312 responses. For each of 13 project types, more respondents reported that they expect an increase in the dollar value of projects available on which to bid than the number who expected a decrease.

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