Marcum Commercial Construction Index Reports Spending Declines in Many Nonresidential Construction Categories Despite National Economic Recovery
New York City, NY – Nonresidential construction spending between September 2016 and September 2017 weakened by nearly 3 percent, with a number of market segments recording double-digit declines, according to the Marcum Commercial Construction Index for the third quarter of 2017. The report juxtaposes this finding against the nation’s continuing economic recovery, which is now in its ninth year.
“One would expect that faster economic growth, record stock prices, low interest rates, unprecedented levels of household wealth, surging consumer confidence, and elevated business owner confidence, as measured by the National Federation of Independent Business, would translate into significant nonresidential construction spending growth… Despite that, the absolute level of nonresidential construction spending in September was at its lowest level since December 2015. Much of the recent weakness has been in publicly financed categories like water supply, conservation and development, and highway/street,” wrote Anirban Basu, Marcum’s chief construction economist and author of the index.
Subsectors showing spending declines during the 12-month period included Manufacturing (-20.3%), Religious (-12.4%), Sewage and Waste Disposal (-10.7%), Water supply (-9.2%), Power (-8.9%), Conservation and Development (-7.7%), Highway and Street (-7.3%), and Office (-6.1%).
Of the gainers for the year-over-year period, Commercial registered the strongest performance, up 11.4%. The other growth sectors included Amusement and Recreation (7.9%), Transportation (5.8%), Lodging (5.3%), Public Safety (4.7%), Communication (3.9%), Educational (3.7%), and Health Care (0.6%).
Mr. Basu highlights that, despite sluggish spending growth in half of the nonresidential construction categories, construction firms continue to increase staffing levels. He also points to tax reform as a pending source of improvement for the industry.
“There are many proposed reforms that would impact construction firms and their owners directly or indirectly, including a much lower corporate tax rate, the elimination of the alternative minimum tax, and a lower tax rate for subchapter-S corporations and similarly situated flow-through tax entities, fewer personal income tax brackets, and the elimination of the estate tax,” he writes.
“This quarter’s index offers a particularly sunny report of the overall economy, if an uneven one for the construction industry. So we advise construction firm owners to enjoy their prosperity, but, planning for the future is essential. Consider the big picture. Despite our rosy general forecast, the facts are that nonresidential spending is down overall and is ever more silo’d by subspecialty. It is imperative to watch these trends and plan or pivot for a profitable future,” said Joseph Natarelli, national leader of Marcum’s Construction Services Group and an office managing partner in New Haven, Connecticut.
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One of the leading construction accounting firms in the U.S., Marcum LLP’s Construction group provides audit, consulting, and taxation services to clients ranging from start-ups to multi-billion-dollar enterprises. The group’s professionals, among the country’s foremost experts in construction accounting, are frequent industry authors and speakers and also serve as technical reviewers for the AICPA’s construction audit and taxation guides. In addition to the quarterly Marcum Commercial Construction Index, the group publishes the annual Marcum JOLT Survey Analysis, a discussion of employment trends in the construction industry.
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