Private, Nonresidential Construction Spending Outlook Is Upbeat, Finds Marcum Construction Index

New York City, NY – The outlook for private nonresidential construction spending remains upbeat, according to the Marcum Commercial Construction Index for the first quarter of 2017.

“Business confidence is in the 97th percentile, unemployment is near a 10-year low, and the Consumer Confidence Index has not been this high since December 2000. This all bodes well for the U.S. construction sector, which stands to benefit from a combination of consumer and business spending growth,” wrote Anirban Basu, Marcum’s chief construction economist and author of the report.

Spending

“Although nonresidential construction spending fell on a monthly basis in March, it remains a largely positive indicator. February’s nonresidential construction spending value of $717 billion… is the highest total since the Census Bureau began tracking the indicator,” Mr. Basu says. The largest gain was in Communication spending, up 18.5% year-over-year in March, to $21.8 billion. Spending in Office construction rose 15.7% year-over-year to $73.3 billion, followed by Commercial construction (+10.9%), Amusement & Recreation (+9.2%), Lodging (+8.3%), and Power (+4.9%). Public Safety and Educational construction spending closed out the positive results, with gains of 2.5% and 1.0%, respectively.

Of the eight subsectors registering declines, the greatest contraction was in Sewage and Waste Disposal, down 22.3% year-over-year to $19.2 billion. Overall, public sector spending contracted by 6.5%, while private construction spending expanded 6.4% on a monthly basis.

Employment

Nonresidential construction employment remained strong, accounting for 3,200 of the 5,000 net new jobs recorded in the construction industry during April, after adding 8,500 in March. Unemployment fell 2.1 percentage points to 6.3 percent.

“The good news is that lower unemployment implies a tighter labor market, which in turn translates into faster wage growth. However, the lower unemployment rate also means that construction firms will have to work harder to fill available job openings and likely pay more for the workers they hire…The most likely scenario is that the U.S. economy will continue to expand in 2017, that jobs will continue to be created, and that interest rates will rise, but not by enough to completely undermine current housing market or commercial construction momentum or the momentum in the broader economy,” Mr. Basu reported.

“It seems that the industry has overcome a weather-related slow start to the year, and we have some great numbers to show for it. Q1 of 2017 has already demonstrated nonresidential spending levels at their highest in the history of that metric, and national unemployment is as low as it has been in the past decade,” said Joseph Natarelli, Marcum’s national Construction Industry Group leader and partner-in-charge of the Firm’s New Haven, Connecticut, office. “At Marcum, we always say that our greatest asset goes home every night. People, good people, can make a company great. I hope the construction industry agrees and bears it in mind as they staff up.”

One of the leading construction accounting firms in the U.S., Marcum LLP’s Construction Industry Practice group provides audit, consulting and taxation services to clients ranging from start-ups to multi-billion-dollar enterprises. The group’s professionals, among the country’s foremost experts in construction accounting, 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.

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