Construction Starts Forecast Revised Lower Amid Infrastructure Uncertainty

Construction in the U.S. slipped year-on-year in Q2, with significant variance among subsectors. Non-residential building activity contracted most sharply.

CINCINNATI — ConstructConnect, a leading provider of construction information and technology solutions in North America, has lowered its projection of U.S. total construction starts growth for this year against 2016 from 4.8% to 4.5%, and the 2018 year-over-year gain from 6% to 5.9%.

“The outlook for U.S. construction starts, as calculated by ConstructConnect, has diminished slightly in the short term,” says to ConstructConnect Chief Economist Alex Carrick. “Prospects for some private sector project initiations (e.g., in retail) have stalled, while high hopes for an early launch of a much-needed super-infrastructure program, to be sponsored, promoted and perhaps largely financed by the new administration in Washington, have been deflated.”

Total construction starts dipped 2.5% year-on-year in Q2, with a divergence in performance continuing between construction subsectors. Total non-residential building starts declined by 17.9% from a year earlier, with several sub-segments experiencing steep drops, according to the Q3 2017 Forecast Quarterly Report, which is said to combine proprietary ConstructConnect data with macroeconomic factors and Oxford Economics econometric expertise.

Construction of retail, manufacturing and parking garages all experienced year-on-year declines exceeding 50%. Construction of retail stores and parking garages look especially weak, with year-to-date declines of 57.2% and 47.2%, respectively. The steep decline in manufacturing, by contrast, was likely due to base effects from a strong rise a year earlier; the year-to-date decline is more modest at 29.1%.

Construction of courthouses, military and sports arenas bucked the negative trend posting year-on-year growth rates above 80%. Ground-breaking on a new football stadium in Los Angeles was a major contributor to the strength in the latter.

New residential construction projects increased by 6.1% year-on-year in Q2, with similar increases seen in both the single-family and multi-family segments. Starts of civil engineering projects saw the largest annual gain in Q2, growing by 19.4% from the same period a year earlier. Strong growth was seen across most sub-segments of engineering with the construction of airports and power infrastructure particularly robust.

Only starts of water and sewage treatment facilities contracted on the year. Oil and gas infrastructure projects are expected to help propel growth in the civil engineering category for the rest of 2017 and beyond. An anticipated private investment-led program of general infrastructure improvements has the potential to positively impact the civil engineering category as well.

The forecast includes a few notable high points in the 2017 year-on-year engineering subcategories:

  • Airports (+38%)
  • Roads (+14%)
  • Bridges (+31%)
  • Power/oil and gas (+30.8%)

Alternative indicators of construction have shown signs of slowing. Put-in-place construction spending from the Census Bureau has been broadly flat in recent months with stronger growth in the residential sector than in the non-residential sector.

Since starts are a forward indicator for put-in-place construction spending, this is broadly consistent with the relative performance between residential and nonresidential construction starts seen since the beginning of 2017. Construction employment growth slowed to 29,000 in Q2, down from 87,000 new jobs in Q1.

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