Construction Put in Place Data for December

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. The growth or contraction that we report in this analysis has had seasonality removed by providing only year-over-year comparisons.

The Construction Put in Place (CPIP) expenditures data for December was released on Feb 3. In three months through December, total construction had the best performance since November 2018.

Total Construction

Total construction expanded by 2.8 percent in three months through December and by 0.5 percent in 12 months through December, both year over year. Since the three-month growth rate is higher than the 12-month rate, we conclude that momentum was positive in December when construction expenditures totaled $86.8 billion. This breaks down to $63.3 billion of private work, $21.3 billion of state and locally funded (S&L) work, and $2.2 billion of federally funded work (Table 1). Growth trend columns in all four tables in this report show momentum. In May 2015 we began to file monthly copies of Table 1, and December 2019 was the first month we have on file in which momentum was positive for all sectors.

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 was at an all-time high in December (not inflation adjusted) after declining each month April through September and picking up each month October through December. The brown bars show growth on a 3MMA basis year over year and the contraction in June through September was the first since November 2011. In 12 months through December 2019, construction expenditures totaled $1.123 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 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.

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 December was negative 0.1 percent, down from positive 6.4 percent in three months through September 2018. February through December 2019 were the first months for private construction to experience negative growth since August 2011. Since July 2019 the decline has slowed as shown by the brown bars in Figure 2 . Momentum was positive in November and December for the first time since October 2018.

Within the nine sectors of private nonresidential buildings, commercial (mainly stores), manufacturing and religious had positive momentum in three months through December. The other six sectors had negative momentum. (Commercial and manufacturing are the two biggest sectors, which swayed the overall momentum result).

Excluding property improvements, single-family residential expanded by 0.4 percent in three months through December with positive momentum and multifamily residential contracted by 4.6 percent with negative momentum. Total housing starts as reported by the Census Bureau expanded by 21.6 percent in three months through December year over 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. The Census Bureau result for single-family starts in December was probably an outlier as it rose to the highest level since October 2007, and even the 3MMA rose by 17.5 percent. Multifamily starts in December were even more unusual, rising by 31.1 percent year over year on a 3MMA basis. Both the single- and multi-family starts data were completely out of line with the CPIP result, which bodes very well for future expenditures if they continue in that mode. Figure 3 shows the growth of both housing sectors since January 2005.

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 2.15 in December 2019.

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 improved every month from January 2019 through January 2020 (Figure 6).

State and Local Construction

The growth rate of S&L work was in the range 4.2 to 7.3 percent for the period April through October 2019, but broke out to the upside in November to 9.8 percent and continued to improve in December to 10.7 percent (Table 3). This includes both infrastructure and nonresidential buildings. S&L nonresidential buildings had negative momentum each month from October 2018 through July 2019 and became positive in August through December with a 9.7 percent growth rate in December. Educational was by far the largest subsector of S&L nonresidential buildings at $5.5 billion in December and expanded at an 8.4 percent rate in three months through December with positive 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

Infrastructure expenditures had robust growth in 2019. Year over year, the growth of infrastructure expenditures in three months through December was 10.7 percent. On a rolling 12-months basis, infrastructure expenditures in December 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 16.4 percent growth in three months through December. Bridge expenditures had negative growth in every month from April 2016 through January 2019. This was followed by a brief five months of expansion before dipping back into contraction in July 2019. In December, bridge work contracted by 11.6 percent year over year (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 2018 and 2019. Single-family residential is dominant and in the 12 months of 2019 totaled $272.2 billion, down from $289.6 billion in 2018.

Figure 10 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 2019, but that record was broken in December at $292.6 billion. There was a growth surge to 2.2 percent year over year in December. In its January update, the American Institute of Architects (AIA) had this to say: “The AIA’s Consensus Construction forecast panel is projecting just a 1.5 percent increase in spending on nonresidential buildings in 2020, and less than a 1 percent increase in 2021. Once inflation in building materials and construction labor are factored in, this suggests a modest decline in actual construction activity. There were a few sectors that outperformed expectations or a least generated the expected increases in 2019. Office and hotel construction activity continued to see solid gains, and the modest growth in health care construction effectively matched projections.”

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 construction, and by Industrial Information Resources for industrial construction. In the case of starts data, the whole project is entered into the database 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.