Pointing to massive increases in infrastructure spending, coupled with a growing backlog of construction jobs that is driving industry employment, the Marcum Commercial Construction Index for the third quarter declares 2018 a good year for the construction industry. The index is produced by Marcum’s National Construction Services group.
Authored by Anirban Basu, Marcum’s chief construction economist, the index reports: “This year may very well be remembered as the year that infrastructure investment roared back in America. The most recent nonresidential construction spending numbers released by the U.S. Census Bureau confirmed massive increases on spending related to water supply, flood control, and transit options over the past year. The fact that spending in the heavy and civil engineering segment continues to grow is consistent with ongoing growth in spending on public works. This is attributable to a number of factors, including rebuilding from certain catastrophes that have occurred over the past two years. This is also a reflection of significantly improved state and local government finances as the recovery works through its 10th year.”
Spending in water supply increased 23% year-over-year, as of October 2018. Transportation spending was up 12.5%. Other subsectors recording double-digit increases included lodging (18.9%), amusement & recreation (16.2%), office (14.8%) and public safety (10.3%).
Only three nonresidential subsectors, out of 16, registered negative growth during the 12-month period: religious (-9.1%), communication (-4.7%) and healthcare (-1.0%).
Employment trends in construction also showed strong results. The industry added 30,000 net new construction jobs in October and 330,000 year-over-year, a gain of 4.7%. Nonresidential construction accounted for almost half of the employment growth in October, split approximately evenly between heavy and civil engineering and nonresidential specialty trade, with a gain in excess of 7,000 net new jobs each.
The strongest gains in employment occurred in the South, with the top six regional performers accounting for more than half of employment growth (58%) in the country’s top 20 largest metropolitan areas between October 2017 and October 2018. The top performers were regions of Arizona, Texas, Florida, and Georgia.
“Given the elevated backlog that currently exists in the industry, the expectation is that demand for construction workers will remain elevated. One potential cause for concern is growing evidence that wages have begun to rise much more rapidly as of late. That, along with other sources of inflation, can be expected to push interest rates higher, which in turn would ultimately translate into more expensive financing for construction projects and fewer construction starts. These dynamics could also further suppress industry profit margins. But for now, it is all systems go for the U.S. nonresidential construction industry from the perspective of demand for construction services,” Mr. Basu wrote.
Joseph Natarelli, national leader of Marcum’s Construction Services group, said, “The results reported for our industry are, I am happy (if cautiously so) to say, almost entirely good news. The economy keeps growing and is doing so in areas that directly affect the success of our industry. Infrastructure and noncommercial building are up. Jobs, in general and in our sectors, are up. Backlogs are up. In short, the third quarter looked really good. But keep an eye on labor costs. Due to the labor demands that this type of growth creates, wages may become pressurized and rise to the point where they begin to erode profit margins. Also, we are not impervious to the power of a softening global marketplace nor the threat of inflation.”
For the complete Marcum Commercial Construction Index, visit www.marcumllp.com/construction.
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 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. Annual Marcum Construction Summits, featuring Anirban Basu as keynote speaker, are next scheduled for January 10 in Fort Lauderdale, FL, and May 8 in Rosemont, IL.