February 16, 2016

Nonresidential Construction Data Mixed at Year-End, Reports Marcum Commercial Construction Index

Nonresidential Construction Data Mixed at Year-End, Reports Marcum Commercial Construction Index

New York City, NY – Nonresidential construction spending fell in December 2015 but concluded with a year-over-year gain, reports the Marcum Commercial Construction Index for Fourth Quarter 2015. The national accounting firm’s chief construction economist, Anirban Basu, who authored the report, attributed the month-over-month dip to depressed construction materials prices, while pointing to expanding backlogs and a new federal highway bill as reasons for optimism.

Construction Spending
During 2015’s final month, nonresidential spending totaled $681.2 billion, an 8.1% increase over the previous year.  Only four of 16 nonresidential construction sectors experienced spending increases for the month, including Highway and Street (9.6% on a monthly basis and 11.7 % on a yearly basis), Communication (4% and 37.2%), Sewage and Waste Disposal (1.3% and 9.7%), and Amusement and Recreation (0.5% and 9.2%).

Of the 12 subsectors that saw a monthly spending decline in December, more than half registered increases year-over-year. These included Lodging (-1.3% month-over-month and 29.1% year-over-year), Office (-1.8% and 16.6%), Healthcare (-3.2% and 0.4%), Educational (-0.8% and 10.0%), Transportation (-0.8% and 2.3%), Power (-0.3% and 7.6%), and Manufacturing (-7.2% and 19.6%). 

“For many years, the private sector has led the recovery. What may be a bit more surprising is the recent uptick in public sector spending.  After sputtering during much of the economic recovery, public nonresidential construction spending has now expanded on a yearly basis for 19 consecutive months,” Mr. Basu wrote.  “Led by an increase in highway and street-related spending – the largest public sector – public spending is finally supplying a boost for contractors,” Mr. Basu said.  “In addition to recent budgetary progress in Washington, D.C., state and local governments in much of the country have seen income, sales and property tax collections rebound.  Policymakers in certain parts of country are now exhibiting greater budgetary confidence, which, in turn, is leading to expanding capital budgets.”

Construction Employment
The Marcum index also reports that employments gains – the one outperforming economic variable over the previous year – have slowed. The U.S. added 151,000 net new position in January 2016, compared to 262,000 net new jobs in December 2015.  Employment growth in the construction industry also stalled in January.  While the construction industry added 18,000 net new jobs for the month, only 2,900 were associated with the nonresidential sector.  Nonresidential specialty trade contractors lost 2,400 jobs in year’s first month.

“Inflationary influences could mean that global banks will think twice about how they lend money and, likely, the interest rates at which they lend it.  While domestic consumer spending has buoyed the economy here, do not look abroad for a further bounce.  On the bright side, however, commercial builders are telling us that their backlogs are good.  In fact, for those who build the roads that connect this nation, the outlook is actually pretty exciting.  Q4 saw a bump in public spending and, specifically, in road building, which is a good thing for owners and workers alike,” said Joseph Natarelli, national leader of Marcum’s Construction Industry Practice group and partner-in-charge of the Firm’s New Haven, Conn., office.

“While 2016 may end up being a decent year for the U.S. economy, recent financial turmoil is likely to translate into less available financial capital and higher interest rates due to changing perceptions of risk. That implies less private nonresidential construction spending growth at some point in the future, perhaps in 2017 or 2018.  Given the increasingly uncertain outlook, contractors would be wise to continue to carefully monitor their backlogs, manage cash with tremendous care, and continue to invest in their banking and insurance relationships,” Mr. Basu said.

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.

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