May 19, 2016
Marcum Commercial Construction Index Reports Stable Industry Activity in First Quarter
New York City, NY - Nonresidential construction spending concluded the first quarter of 2016 with a marginal decline, as a significant upward revision of February spending data produced a 0.4 percent monthly decrease in March. According to the first quarterly Marcum Commercial Construction Index of 2016, the $695.7 billion spent on nonresidential construction during March on a seasonally adjusted, annualized basis would have otherwise registered a gain for the month. March spending was up 8.3 percent year-to-year. The index is published by the Construction Industry Practice group of Marcum LLP, a top national accounting and advisory firm.
Eight of 16 nonresidential subsectors ended the first quarter with monthly growth, while 12 registered year-over-year gains. The largest annual gains were in Lodging (27.7%), Office (19.5%), Highway and Street (18.8%), Commercial (14.5%) and Educational (11.8%). Public safety showed the greatest decline in spending (-12.3%), followed by two other public spending categories: Water Supply (-6.1%) and Conservation & Development (-3.3%).
Marcum's chief construction economist, Anirban Basu, who authors the quarterly report, commented on "enormous shifts" he observes in the composition of nonresidential construction spending. He pointed to the Manufacturing sector, where spending is now six times greater than it was in 2004, and to Power, where annualized spending more than doubled in the past 12 years, from $36 billion to $87 billion. Only two of the 16 nonresidential construction subsectors – Religious and Public Safety- declined during the same period, but together they account for only 1.5 percent of total nonresidential spending.
While spending has been mostly flat over the past 12 months, the current holding pattern maintains the surge levels established during the first half of 2015.
"Nonresidential construction spending has established a much flatter trajectory since the first and second quarters of 2015. Other construction indicators are consistent with the notion that industry growth has slowed," Mr. Basu wrote.
The Marcum index found that construction employment fared less well than spending, with growth slowing on residential weakness. Residential specialty trade contractors lost a net 10,900 positions in March, while heavy and civil engineers lost 2,200. Nonresidential construction had a net gain of 6,600 new jobs in April and is up 102,200 year-over-year.
Mr. Basu pointed to drastic changes in regional construction employment patterns, with Detroit falling from the top ranking among the 20 largest U.S. metro areas a year ago to #16 currently, and Tampa ascending to the #1 position. Houston and Dallas are now squarely at the bottom, following the collapse of oil and natural gas prices.
Looking ahead, Marcum's chief economist reports, "Many nonresidential construction firms continue to report lengthy backlog. With the U.S. economy continuing to expand and generate job growth, and with the cost of capital remaining shockingly low, contractors are likely to remain busy in the near- and middle-terms. Should the Federal Reserve find that it needs to raise interest rates more quickly next year than presently anticipated, that would have many implications, including diminishing both private and public sector construction spending, all things being equal."
Joseph Natarelli, national leader of Marcum's Construction Industry Practice group and partner-in-charge of the Firm's New Haven, Conn., office, said, "While this quarter's data did offer quite a bit of encouraging news, it wasn't uniformly good in all areas. We'll be keeping an eye on all subsectors over the course of the next few indices, but it is worth noting that all of the subsectors in decline are controlled largely by governmental spending and are driven more by policy and politics than by prevailing market forces."
To access the complete Marcum Commercial Construction Index, visit www.marcumllp.com/construction.
Marcum LLP's Construction Industry group provides strategic and timely accounting, audit, and consulting and taxation services to construction clients ranging from start-ups to multi-billion-dollar enterprises. The Firm's technical experts serve on many industry boards and committees and regularly contribute to construction conferences and publications.