Total U.S. construction declined by 2.9 percent in April, compared with March, on a seasonally adjusted basis. On a non-adjusted basis, data for April had a positive growth of 2.3 percent, which was unusually low for this time of year. Normally April expenditures are about 8 percent higher than March.
On a year-over-year basis and using a three-month moving average (3MMA), April had positive growth of 5.0 percent. Because of the momentum that exists in most building projects, we expect steel consumption in construction to decline more slowly than in manufacturing due to the coronavirus.
At SMU, we analyze the CPIP data to provide a detailed description of activity that accounts for about 45 percent of total U.S. steel consumption. See the end of this report for a description of how we perform this analysis and structure the data.
Total construction expanded by 5.0 percent in three months through April and by 2.0 percent in 12 months through April, both year over year. Since the three-month growth rate is higher than the 12-month rate, we conclude that momentum was positive in April when construction expenditures totaled $92.8 billion. This breaks down to $66.2 billion of private work, $24.6 billion of state and locally funded (S&L) work, and $2.1 billion of federally funded work (Table 1).
Figure 1 shows total construction expenditures on a rolling 12-month basis as the blue line and the rolling three-month year-over-year growth rate as the brown bars. Total construction on a rolling three-months basis was at an all-time high in October last year before suffering the normal winter decline. Expenditures increased in three months through March and in three months through April, but by less than the seasonal norm in both cases. The brown bars show growth on a 3MMA basis year over year, and the negative growth in June through September last year was the first since November 2011. In 12 months through April 2020, construction expenditures totaled $1.142 trillion. (This number excludes residential improvements; see explanation below.) To put that number in perspective, the pre-recession peak of total construction on a rolling 12-month basis was $1.028 trillion through September 2006. The low point was $665.1 billion in the 12 months through March 2011.
Figures 1, 2, 6, 7 and 9 in this analysis have the same format, the result of which is to smooth out variation and eliminate seasonality. We consider four sectors within total construction: nonresidential, residential, infrastructure and other. The latter is a catchall and includes industrial, utilities and power.
Table 2 shows the breakdown of private expenditures into residential and nonresidential and subsectors of both. The growth rate of private construction in three months through April was positive 4.4 percent, up from negative 4.2 percent in three months through July last year. Since then there was steady improvement through March and a slowdown in April shown by the brown bars in Figure 2. Momentum was positive in November through April for the first time since October 2018.
Within the private construction sector, the overall positive growth was driven mainly by single-family residential and the catch all of industrial, utilities and power. Nonresidential buildings were mixed with three sectors having positive momentum and six negative.
Excluding property improvements, single-family residential expanded by 11.0 percent in three months through April with positive momentum and multifamily residential contracted by 7.0 percent with negative momentum. Total housing starts as reported by Census Bureau expanded by 3.3 percent in three months through April year over year, but there was a total 22 percent decline in the months of March and April. In the starts data, the whole project is entered into the database when ground is broken. Construction put in place is based on spending work as it proceeds; the value of a project is spread out from the project’s start to its completion. In three months through April compared to three months through March, single- and multi-family starts declined by 11.7 percent and 24.7 percent, respectively. Figure 3 shows the growth of both housing sectors since April 2005.
Figure 4 shows the ratio of single-family to multifamily starts. The proportion of single-family gradually increased from April 2015 when the ratio was 1.66 in favor of single units to 2.24 in April 2020.
Figure 5 shows total housing starts in four regions with the South being the strongest and the Northeast the weakest. On a 3MMA basis, the National Association of Home Builders optimism index crashed in April and recovered slightly in May (Figure 6).
State and Local Construction
Total S&L expenditures held up better than private work in April, though with negative momentum. This includes both infrastructure and nonresidential buildings. In three months through April, all building sectors except recreation and health care had positive growth (Table 3). Educational was by far the largest subsector of S&L nonresidential buildings at $5.9 billion in April and expanded at a 2.7 percent rate in three months through April with negative momentum. Figure 7 shows the history of total S&L expenditures.
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 also regional differences to be considered, data for which is not available from the Commerce Department.
Infrastructure expenditures had robust growth in 2019 that continued through April 2020. Year over year, the growth of infrastructure expenditures in three months through April was 7.4 percent. On a rolling 12-months basis, infrastructure expenditures in April were at an all-time high. (Note: There is no seasonality in this report as we are considering year-over-year data.) Highways and streets including pavement and bridges account for almost three-quarters of total infrastructure expenditures. Highway pavement is the main subcomponent of highways and streets and had a 15.4 percent growth in three months through April. Bridge expenditures had negative growth in every month from July 2019 through April 2020 (Table 4).
Figure 8 shows the rolling 12-month history of infrastructure expenditures and the year-over-year growth rate.
Total Building Construction Including Residential
Figure 9 compares year-to-date expenditures for the construction of the various building sectors for 2019 and 2020. Single-family residential is dominant and in the 12 months of 2019 totaled $274.0 billion, down from $289.6 billion in 2018.
Figure 10 shows total expenditures and growth of nonresidential building construction through April 2020. On a rolling 12-months basis, expenditures on nonresidential buildings were at an all-time high in March 2020 with only a slight decline in April.
Explanation: Each month, the Commerce Department issues its Construction Put In Place (CPIP) data, usually on the first working day covering activity one month and one day earlier. There are three major categories based on funding source: private, state and local, and federal. Within these three groups are about 120 subcategories of construction projects. At SMU, we slice and dice the expenditures from the three funding categories to provide a summary of steel consuming sectors. For example, we combine all three to reach a total of nonresidential building expenditures. CPIP is based on spending work as it occurs and is estimated each month from a sample of projects. In effect, the value of a project is spread out from the project’s start to its completion. This is different from the starts data published by the Census Bureau for residential construction, by Dodge Data & Analytics and by Reed Construction for nonresidential construction, and by Industrial Information Resources for industrial construction. In the case of starts data, the whole project is entered into the data base when ground is broken. The result is that the starts data can be very spiky, which is not the case with CPIP.
The official CPIP press release 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 background data is provided as both seasonally adjusted and non-adjusted. The detail is hidden in the published tables, which SMU tracks and dissects to provide a long-term perspective. Our intent is to provide a route map for those subscribers who are dependent on this industry to “follow the money.” This is a broad and complex subject; therefore, to make this monthly write-up more comprehensible, we are keeping the information format as consistent as possible. In our opinion, the absolute value of the dollar expenditures presented are of little interest. What we are after is the magnitude of growth or contraction of the various sectors. In the SMU analysis, we consider only the non-seasonally adjusted data. We eliminate seasonal effects by comparing rolling three-month expenditures year over year. CPIP data also includes the category of residential improvements, which we have removed from our analysis because such expenditures are minor consumers of steel.
In the four tables included in this analysis, we present the non-seasonally adjusted expenditures for the most recent data release. Growth rates presented are all year over year and are the rate for the single month’s result, the rolling three months and the rolling 12 months. We ignore the single month year-over-year result in our write-ups because these numbers are preliminary and can contain too much noise. The growth trend columns indicate momentum. If the rolling three-month growth rate is stronger than the rolling 12 months, we define that as positive momentum, or vice versa. In the text, when we refer to growth rate, we are describing the rolling three-month year-over-year rate. In Figures 1, 2, 6, 7 and 9 the blue lines represent the rolling 12-month expenditures and the brown bars represent the rolling three-month year-over-year growth rates.
Peter WrightRead more from Peter Wright
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