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Marcum Commercial Construction Index for Fourth Quarter Reports Positive Short-Term Outlook with Longer-Term Risks

Featured: Joseph Natarelli, Partner-in-Charge, New Haven, CT
Anirban Basu, Chief Construction Economist

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New York City, NY - The Marcum Commercial Construction Index for the fourth quarter of 2016 predicts that President Donald Trump's stimulus package will deliver a boost to the national economy in the short-term but is likely to lead to deep recession in the longer-term. The index is produced by the national Construction Industry Practice group of Marcum LLP, a top national accounting and advisory firm with offices throughout the U.S., as well as Grand Cayman, China and Ireland.

"Planned public sector stimulus seems consistent with the notion that a period of more rapid construction spending growth is approaching over the next two years. The longer-term outlook is, of course, decidedly murkier," wrote Anirban Basu, Marcum's chief construction economist and author of the report. "In the past, infrastructure spending presumed government financing, but that's an increasingly shaky presumption. By offering $130 billion in federal tax credits to private investors backing infrastructure projects, President Trump envisions public-private partnerships as representing the key to building and maintaining the nation's infrastructure. That sounds promising, but will, of course, require congressional sanction and will be scrutinized from the perspective of actual budgetary impact."

Nonresidential Construction Spending
In December, nonresidential construction spending totaled $708.2 billion, a slight decline of 0.7% from November but a 4.6% gain year-over-year from December 2015. Six of the 16 nonresidential subsectors registered gains for the month, led by Communication spending, which rose 5.5%. Year-over-year gains were stronger, with nine subsectors ending 2016 with positive results. Office-related spending was the most notable, with growth of 31% for the 12-month period. Lodging, Amusement & Recreation, Conservation & Development, and Commercial spending also finished the year with double-digit growth.  Health care, Education, Communication, and Highway & Street completed the gainers list. 

Sewage & Waste Disposal saw the biggest decline, with a drop of 18% for the year. Power, Water Supply, Public Safety, Religious, Manufacturing, and Transportation construction also contracted but at less severe, single-digit rates.

Construction Employment
The new year brought more positive news, as construction employment rose in January in both the residential and nonresidential categories. The nonresidential sector was particularly strong, accounting for more than two-fifths of net new construction jobs. In addition, the construction unemployment rate surged to 9.4%, suggesting that more people have begun to look for work in the construction industry, likely as the result of the infrastructure-led stimulus package expected from Washington, D.C.

New Nonresidential Building Construction Prices
Beginning with the fourth quarter 2016 report, a new section in the Marcum Commercial Construction Index highlights New Nonresidential Building Construction prices, a special regional indicator introduced under the Bureau of Labor Statistics' Producer Price Index in November. The new data measure the average change in selling prices over time, indexed against a base year.

For the month of December 2016, prices of inputs to construction industries increased 2.1% from a year earlier, on a par with finished goods prices overall.  New nonresidential building construction prices increased 0.5% nationally, year-over-year. Regional price changes ranged from 0.3% in the Midwest to 0.8% in the South.

"The economic outlook for 2017 appears benign," Mr. Basu wrote.  "At the same time, inflationary pressures are building, including in the forms of more rapid wage growth, healthcare costs, apartment rents, and fuel.  Should inflationary pressures continue to build, interest rates may rise faster than is presently anticipated, which, in turn, could undermine high asset prices."

"Based on our data and my everyday interactions with our Firm's clients and those that serve them, I can report a generally optimistic outlook for our industry in the near-term. The new administration is proudly pro-business, which helps, as does their bold-type commitment to large infrastructure improvements throughout the country. From roads and heavy highway to bridges and airports, that type of mandate can meaningfully move the needle for a segment of our industry that has dragged over the past year with zero or negative growth," said Joseph Natarelli, Marcum's national Construction Industry Group leader and partner-in-charge of the Firm's New Haven, Connecticut, office.

For the complete Marcum Commercial Construction Index, visit www.marcumllp.com/industries/construction.

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.


About Marcum LLP
Marcum LLP is one of the largest independent public accounting and advisory services firms in the nation, with offices in major business markets throughout the U.S., as well as Grand Cayman, China and Ireland. Headquartered in New York City, Marcum provides a full spectrum of traditional tax, accounting and assurance services; advisory, valuation and litigation support; and an extensive range of specialty and niche industry practices. The Firm serves both privately held and publicly traded companies, as well as high net worth individuals, private equity funds and hedge funds, with a focus on middle-market companies and closely held family businesses. Marcum is a member of the Marcum Group, an organization providing a comprehensive array of professional services.

 
Featured
Joseph Natarelli

Partner-in-Charge
New Haven, CT
Assurance
New Haven, CT
Anirban Basu

Chief Construction Economist


 




 
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