Commerce CPIP Data Shows Construction Contracting

At SMU, we analyze the CPIP data to provide a clear description of activity that accounts for about 45 percent of total U.S. steel consumption. See the end of this report for more detail on how we perform this analysis and structure the data. The growth or contraction that we report in this analysis has had seasonality removed by providing only year-over-year comparisons.

Total Construction

Total construction contracted by 1.5 percent in three months through September and expanded by 0.1 percent in 12 months through September, both year over year. Since the three-month growth rate is lower than the 12-month rate, we conclude that momentum is negative. September construction expenditures totaled $102.0 billion, which breaks down to $69.6 billion of private work, $30.0 billion of state and locally funded (S&L) work, and $2.4 billion of federally funded work (Table 1). Growth trend columns in all four tables in this report show momentum.

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 12-months basis through April was at an all-time high, but declined each month through September. The brown bars show growth on a 3MMA basis year over year and became negative in June through September for the first time since November 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. Of these four sectors, only infrastructure had positive momentum in September.

In 12 months through September 2019, construction expenditures totaled $1.113 trillion. (This number excludes residential improvements; see explanation below.) To put that number in context, the pre-recession peak of total construction on a rolling 12-month basis was $1.028 trillion through November 2006. The low point was $665.1 billion in the 12 months through March 2011.

Private Construction

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 September was negative 4.4 percent, down from positive 5.8 percent in three months through August last year. Growth has declined continuously every month since August last year and became negative in February this year as shown by the brown bars in Figure 2. February through September were the first months for private construction to experience negative growth since August 2011.

Within the nine sectors of private nonresidential buildings, only healthcare had positive momentum in September.

Excluding property improvements, single-family residential contracted by 6.8 percent in three months through September with negative momentum and multifamily residential grew by 4.8 percent with zero momentum. Total housing starts as reported by the Census Bureau expanded by 0.6 percent in three months through September. On a 3MMA basis, the National Association of Home Builders optimism index improved every month from January through September this year. 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. Single-family starts expanded by 2.9 percent in the three months through September year over year. August and September were the first months with positive growth since October last year. This was a much better result than that shown in the CPIP data. Multifamily starts expanded by 6.7 percent, which was a similar result to the CPIP analysis. Figure 3 shows the growth of both housing sectors since January 2005 and Figure 4 shows the ratio of single-family to multifamily starts. The proportion of single-family gradually increased from January 2015 when the ratio was 1.66 in favor of single units to 2.45 in September 2019. Figure 5 shows total housing starts in four regions with the South being the strongest and the Northeast the weakest.

State and Local Construction

The growth rate of S&L work has been in the range of 4.0 to 6.9 percent for the last six months and was 5.1 percent in September (Table 3). This includes both infrastructure and nonresidential buildings. S&L nonresidential buildings had negative momentum each month from November 2018 through August 2019 and became positive in September with a 4.5 percent growth rate. Educational is by far the largest subsector of S&L nonresidential buildings at $7.0 billion in September and expanded at a 1.3 percent rate in three months through September, but with positive momentum. Figure 6 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

Infrastructure expenditures have had robust growth in 2019. Year over year the growth of infrastructure expenditures in three months through September was 5.8 percent with double-digit expansion in April through June. On a rolling 12 months basis, infrastructure expenditures in September were at an all-time high. (Note: This is not seasonal 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 7.9 percent growth in three months through September. Bridge expenditures had negative growth in every month of 2018 before improving to positive 8.9 percent in April 2019 and declining again in each of the following five months to negative 7.5 percent in September (Table 4).

Figure 7 shows the rolling 12-month history of infrastructure expenditures and the year-over-year growth rate.

Total Building Construction Including Residential

Figure 8 compares year-to-date expenditures for the construction of the various building sectors for 2018 and 2019. Single-family residential is dominant and in the 12 months of 2018 totaled $281.8 billion. In the first nine months of 2019, the annual rate of expenditures was $268.0 billion.

Figure 9 shows total expenditures and growth of nonresidential building construction. On a rolling 12-months basis, expenditures on nonresidential buildings were at an all-time high in April this year. The growth rate has declined in each of the last five months reaching negative 1.7 percent in September. July through September were the first months for nonresidential building construction to contract since September 2011.

SMU Comment: Construction has been propping up the long products steel market and to a lesser extent the flat rolled market, but now it is clear that this important steel-consuming sector is contracting. The ISM Manufacturing Index for September was released on the same day as the CPIP update. This index improved slightly in October, but the 3MMA continued to decline and is in contraction territory. The decline in steel consumption that began in March will continue into at least Q1 2020.

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 as concise a summary as possible 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, 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 very 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, and 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.