Marcum Commercial Construction Index Reports Industry Outlook Has Shifted; More Change Expected
New York City, NY – The Marcum Commercial Construction Index for the third quarter of 2016, released today, highlights the continued spending weakness in nonresidential construction during the first nine months of the year, but also points to a significant anticipated change starting in 2017, due to the major infrastructure-led stimulus package expected from the new Presidential administration. The quarterly index is produced by the national Construction Industry Practice group of Marcum LLP, a top national accounting and advisory firm.
Overall nonresidential construction spending in September totaled $690.5 billion, down a slight 0.7 percent from a year earlier. Of the category’s 16 subsectors, bright spots included Office-related spending, which registered a whopping 23% gain to $70.7 billion; Lodging, up 20% year-over-year to $28.8 billion; Commercial construction, with a 6% gain to $71.7 billion; Amusement & Recreation, up 3.5% to $21.4 billion; and Educational construction, at $87.1 billion, a 3.3% percent increase.
The remaining 11 nonresidential subsectors all recorded fall-offs for the month, with the greatest declines in Sewage & Waste Disposal (-18.8%), Water Supply (-13.7%), Communication (-12.6%) and Transportation (-11.3%).
“Oddly enough, certain U.S. construction segments have been aided by a weak global economy. Given a lack of investment opportunities worldwide, a significant amount of foreign capital has flowed into the U.S. in search of a better combination of yield and safety. Some of this money has flowed into office, lodging, and commercial construction, helping to explain the strength of these segments. Meanwhile, public spending has continued to be incredibly weak,” wrote Anirban Basu, Marcum’s chief construction economist.
Mr. Basu also discussed employment trends in the industry, noting that despite a weak economy, construction hiring continues to strengthen. “Most construction firms report intense difficulty securing electricians, heating/cooling professionals, welders and carpenters, among others,” he observes. The construction worker unemployment rate in October was less than half of what it was five years ago, down to 5.7 % from 13.7 % in the same month of 2011. This compares to a national unemployment rate of 4.9% at the end of the 2016 third quarter.
“Data from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey indicate that construction job openings stand at a 10-year high. The Christian Science Monitor reported that demand for construction workers is so strong in Portland, Maine, that Southern Maine Community College has had to suspend its construction technology program because too many students were leaving the program to accept employment offers,” Mr. Basu wrote.
Looking ahead, the Marcum report predicts that a stimulus package will put pressure on wages and inflation and lead to higher interest rates, which in turn will eventually hurt construction spending. “After a period of relatively intense construction spending due in part to a stimulus package, the nonresidential sector could face a sharp slowdown in construction spending thereafter,” it states.
Joseph Natarelli, national leader of Marcum’s Construction group and partner-in-charge of the Firm’s New Haven, Conn., office, said, “Infrastructure, deregulation, tax breaks and a shifting international climate could very well mean more investment in and into the States, more government projects and, in general, more opportunity for businesses to build and grow. It’s not going to be a straight-ahead bonanza, though. Upward wage pressure and access to talent have been challenges recently and could likely get even worse for contractors as demand grows over filling backlogs and new infrastructure bids come online. The same government stimulus that increases your volume may also increase your burden.”
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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