Nonresidential Construction Spending Weakens According to Marcum

Nonresidential construction spending between September 2016 and September 2017 weakened by nearly 3 percent, with a number of market segments recording double-digit declines, according to the Marcum Commercial Construction Index for the third quarter of 2017. The report juxtaposes this finding against the national continuing economic recovery, which is now in its ninth year.

One would expect that faster economic growth, record stock prices, low interest rates, unprecedented levels of household wealth, surging consumer confidence, and elevated business owner confidence, as measured by the National Federation of Independent Business, would translate into nonresidential construction spending growth. Despite that, the absolute level of nonresidential construction spending in September was at its lowest level since December 2015. Much of the recent weakness has been in publicly financed categories like water supply, conservation and development, and highway/street, wrote Anirban Basu, Marcum chief construction economist and author of the index.

Subsectors showing spending declines during the 12-month period included Manufacturing (-20.3 percent); Religious (-12.4 percent); Sewage and Waste Disposal (-10.7 percent); Water supply (-9.2 percent); Power (-8.9 percent); Conservation and Development (-7.7 percent); Highway and Street (-7.3 percent); and Office (-6.1 percent).

Of the gainers for the year-over-year period, Commercial registered the strongest performance, up 11.4 percent. The other growth sectors included Amusement and Recreation (7.9 percent); Transportation (5.8 percent); Lodging (5.3 percent); Public Safety (4.7 percent); Communication (3.9 percent); Educational (3.7 percent); and Health Care (0.6 percent).

Mr. Basu highlights that, despite sluggish spending growth in half of the nonresidential construction categories, construction firms continue to increase staffing levels. He also points to tax reform as a pending source of improvement for the industry.

There are many proposed reforms that would impact construction firms and their owners directly or indirectly, including a lower corporate tax rate, the elimination of the alternative minimum tax, and a lower tax rate for subchapter-S corporations and similarly situated flow-through tax entities, fewer personal income tax brackets, and the elimination of the estate tax, he writes.

This quarter the index offers a sunny report of the overall economy, if an uneven one for the construction industry. So we advise construction firm owners to enjoy their prosperity, but, planning for the future is essential. Consider the big picture. Despite our rosy general forecast, the facts are that nonresidential spending is down overall and is ever more siloed by subspecialty. It is imperative to watch these trends and plan or pivot for a profitable future, said Joseph Natarelli, national leader of Marcum?s Construction Services Group and an office managing partner in New Haven, Conn.

Marcum Construction Summits

Additional insight into the prevailing dynamics of the construction industry will be the focus of the 2018 Marcum Construction Summits, to be held in Ft. Lauderdale, Fla., on Jan. 17; Rosemont, Ill., on March 8; New Haven, Conn., on Sept. 25; and Nashville, on Oct. 1. Mr. Basu, a construction economist, will keynote all four conferences, which are presented in partnership with leading trade organizations of the construction industry.

Visit the website for sponsorship and registration information.

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