Steel Markets

Construction Expenditures (CPIP) Through July

Written by Peter Wright

Each month the Commerce Department issues its Construction Put in Place (CPIP) data, usually on the first working day covering activity two months earlier. July data was released on Tuesday September 1st.

Construction Put in Place is based on spending work as it occurs, estimated for a given month from a sample of projects. In effect the value of a project is spread out from the project’s start to its completion. Construction starts data published by the Commerce Department for residential construction, by Dodge Data & Analytics and Reed Construction for non-residential and Industrial Information Resources for industrial construction is completely different as in these cases the whole project is entered to the data base when ground is broken. This results in the starts data being extremely spiky which is not the case with CPIP.

The official CPIP press report gives no appreciation of trends on a historical basis and merely compares the current month with the previous one on a seasonally adjusted basis. The detail is hidden in the published data tables which we at SMU dissect to provide a long term perspective. Our intent is to provide a rout map for those subscribers who are dependent on this industry to “Follow the money.” This is a very broad and complex subject therefore to make this monthly write up more comprehensible we are keeping the information format as consistent as possible. Data is reported by the Commerce Department on both a seasonally adjusted and non-adjusted basis. Their official commentary is based on adjusted numbers. In the SMU analysis we consider only the non-seasonally adjusted data because we don’t trust seasonal analysis and in any case our businesses operate in a seasonal world. We eliminate seasonal effects by comparing rolling three month expenditures year over year.

In the four tables below we present the non-seasonally adjusted expenditures for the most recent month of data. Growth rates presented are all year over year and are the rate for the single months result, the rolling 3 months and the rolling 12 months. The arrows indicate momentum. If the rolling 3 month growth rate is stronger than the rolling 12 months we define this as positive momentum and vice versa. In the text below when we refer to growth rate we are describing the rolling 3 months year over year rate. In Figures 1 through 4 below the blue lines represent the rolling 12 month expenditures and the brown bars represent the rolling 3 month year over year growth rates.

Total Construction: Last month we reported that, “the June CPIP report was nothing short of excellent and April and May expenditures were revised upwards.” This month (July) we find that the result was even better than June.

July expenditures were $88.5 billion which breaks down to $59.4 B of private work, $27.2 B of state and locally (S&L) funded work and $1.9 B of federally funded (Table 1).

The projected date at which total construction will reach the pre-recession level was Q2 2017 in our May update but the June and July performance could shorten that projection by over a year (Figure 1).

On a rolling three month basis y/y total construction was up by 13.4 percent led by private work up by 16.8 percent. Total construction growth is accelerating since the short term growth (3 months 13.4 percent) is higher than the long term (9.8 percent). We report this as positive momentum. Note this is not a seasonal effect because our y/y analysis removes seasonality. All three categories, private, S&L and federal had positive momentum in the July report. We consider three sectors within total construction. These are non-residential, residential and infrastructure. The growth rate of non-residential buildings is a very high at 21.1 percent and accelerating. Residential is growing at 15.8 percent with negative momentum. Infrastructure grew 9.5 percent in three months through July year over year with positive momentum. The growth rate of total construction slowed in the first three months of this year but improved in April, May, June and July as shown by the brown bars in Figure 1. The pre-recession peak of total construction on a rolling 12 month basis was $1,145 B in 12 months through February 2007. The low point was $665.1 B in 12 months through October 2011. The 12 month total through the latest data of July 2015 was $909.8 B. This was the first time to exceed $900 B since April 2009.

Private Construction: Table 2 shows the breakdown of total private expenditures into residential and non-residential and sub-sectors of both.

The growth rate of private construction was 16.8 percent in the last three months as shown by the brown bars in Figure 2.

The blue lines in all four graphs in this report are 12 month totals which smooths out seasonal variation. Our analysis of residential construction in this report excludes improvements which are a huge expenditure but which we rationalize as a minimal consumer of steel. Excluding improvements our report shows that both single and multi-family residential continue to have strong y/y growth but both have negative momentum. The single family expenditures reported here have a rate of growth very similar to that of the Census Bureau housing starts data which have a growth rate of 14.9 percent. Starts being similar to the current expenditures we are discussing here suggests growth stability going forward. The growth of multifamily expenditures in this CPIP report is higher than construction starts of this sector reported by the Census Bureau. In this CPIP report multi family is growing at 23.9 percent as the multifamily housing starts data from the Census Bureau is growing at 17.3 percent. Note: the housing data published around the 12th of each month reports starts in which the total project cost is entered in the single month of groundbreaking. Private non-residential building expenditures grew at an extraordinary 29.7 percent rate in three months through July y/y with a positive momentum. Within private non-residential, only commercial buildings had negative momentum and transportation buildings were flat. All segments of private nonresidential buildings except commercial (stores) educational and religious had double digit growth in this latest data. About 70 percent of educational buildings are funded by state and local government, total educational buildings (P + S&L) grew at 5 percent with positive momentum. Religious buildings had positive growth in April through July for the first time since December 2009.

State and Local Construction; S&L work expanded by 7.0 percent in the rolling three months through July y/y with positive momentum (Table 3).

This was the highest rate of growth for S&L since March 2008 and was the seventeenth consecutive month of positive growth, the first time that has happened in four years. Figure 3 shows year over year growth as the brown bars.

S&L non-residential building grew by 5.3 percent y/y with positive momentum. It looks as though state and local governments are beginning to loosen the purse strings as far as construction is concerned. Educational buildings are by far the largest sub sector of S&L non-residential at $6.725 billion in July. Recreational buildings have accelerated markedly in the first 7 months of 2015 and grew by 18.4 percent in the latest data. This includes convention centers, sports arenas, theaters and miscellaneous amusements. Public safety buildings which includes jails, police, courthouses and fire stations have had negative growth for 32 straight months. Comparing Figures 2 and 3 it can be seen that S&L construction did not have as severe a decline as private work during the recession and that private work is bouncing back faster. Many state and local governments are still far from healthy but a long period of recovery is underway that will take to the end of the decade to reach pre-recession levels.

Drilling down into the private and S&L sectors as presented in Tables 2 and 3 shows which project types should be targeted for steel sales and which should be avoided. There are some project types within S&L that are doing quite well but there are also major regional differences to be considered.

Infrastructure: Expenditures have had positive growth in each of the last 24 months through July with a +9.5 percent result in the latest data and with positive momentum. This was the best growth rate for infrastructure since December 2007. Highway and streets including pavement and bridges accounts for about 2/3 of total infrastructure expenditures and had positive growth for 15 months through February, contracted in March and April then grew by 2.6 percent, 8.3 percent and 9.6 percent in May, June and July respectively (Table 4).

Highway pavement is the main sub-component of highways and streets and had a 7.4 percent positive growth in three months through July following negative 5.0 percent in March, negative 2.2 percent in April, negative 1.8 in May and positive 5.4 in June. (Looks like a trend!). Bridge work contracted every month in the period August through November 2014 but has since expanded every month with an accelerating trend. Bridge work totaled $3.3 billion in the single month of July with a strong 14.1 percent growth rate. Uncertainty about the future of federal funding is likely to last into at least October this year which results in state governments postponing major projects. That will mean restrained increases in infrastructure starts for both 2015 and 2016. Later this year (hopefully), new legislation will combine with improved state finances and innovative approaches to funding surface transportation projects to lift construction starts more vigorously. Water supply returned to positive growth in June and July after a slight contraction in May which broke a 10 straight months of expansion. Based on reports of the critical state of water supply out west this sector is likely to have major growth in the next few years. On a rolling 12 month basis, infrastructure expenditures are now higher than they were before the recession (Figure 4).

Total Building Construction including Residential: Figure 5 compares YTD expenditures for building construction for 2014 and 2015.

Single family residential is dominant and through July 2015 totaled over $119.5 billion. On this year over year basis the only sector to be trailing 2014 is public safety which is down by 5.9 percent, at the other extreme manufacturing is up by 59.6 percent.

Latest in Steel Markets