U.S. Construction Economics - Value of Put-in-Place Construction (ARC mentioned as well)

Good morning. U.S. “Construction Economics” statistics today!

The U.S. Census Bureau tracks and publishes the “value” of “put-in-place” construction. Statistics (in millions of dollars) are published for four different categories (see bold headings below).

Residential

Nonresidential

Sub-total Private (Res & Non-Res)

State & local

Federal

Sub-total Public (State & Fed)

Total Private and Public (i.e., all)

Unfortunately, values are reported from 1993 through 2010 for Residential Construction and Non-Residential Construction, but values for only 2009 and 2010 were reported for State & Local and Federal Construction (at least in the tables I researched.)

One other note: values for December 2010 are not yet posted, so, in order to come up with annual totals, I had to estimate values for December 2010. I’m pretty sure that my estimates for December 2010 are not far off and, therefore, will not distort the comparisons I wanted to make.

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COMMENTARY:

Residential construction.

You will note in the chart below that the value of “Residential” put-in-place construction “peaked” in 2006. Not surprising, huh? In 2007, early in the year, we (at my former reprographics company) began to see a negative trend in sales of reprographics services to our engineering customers who provided “civil, site, survey and land-planning services”. And, in fact, our sales to engineering firms who were more heavily involved in “residential” development work showed a greater negative trend than did our sales to engineering firms who had a healthier mix of res and non-res work. As times got worse, one of my former customers, a large, 50+ year-old, locally-prestigious engineering firm (Heidt & Associates) went down for the count (i.e., closed up shop.) In 2006, our sales to that customer were approximately $300,000, if not more. Another of our customers, an Architecture firm heavily involved in designing tract homes for residential home builders (like Pulte, DR Horton, KB Homes, etc.) began, early-on, to feel the effects of the decline in residential construction. That customer had to seriously down-size its staff level. Great examples of how awful things got for engineering firms, architects and home builders who were heavily dependent on residential development projects.

The value of residential construction for 2010 is over 60% less than the value of residential construction in 2006.

The values for 2010 vs. 2009 appear to indicate that “residential” has bottomed-out. However, the foreclosure “crisis” is, “as we speak,” still delaying an up-swing in residential development. There will be a turnaround in residential construction. However, when, exactly, we will see that happen in a robust fashion is, at this point, impossible to predict.

Non-Residential Construction.

As you can see in the chart below for Non-Res Construction, the value of put-in-place non-res construction did not peak until 2008, some 1 ½ to 2 years after the value of residential construction peaked. We started this blog in early 2008, and, at that time, we said that non-residential construction, like it or not, accept it or not, would feel (and react negatively to) the decline in residential construction. That opinion, most unfortunately, proved to be fact. Many reprographers began to feel the recession in non-res in early 2008, but not necessarily because “construction” was down. It was the architects who first felt the effects of the downturn in non-res. First, sales to architecture firms fell off. Later, construction companies felt the effects of the downturn in non-res, and sales to construction companies fell off. While the “housing bubble” burst because of serious overbuilding (caused by too much speculation in the housing market and too much “easy money”, the non-res segment was not overbuilt; that segment fell victim to the financial crisis brought on by commercial-sector greed and government regulatory incompetence (or lack of regulation, take your pick.)

The value of non-residential construction for 2010 was approximately 35% less than the value of residential construction in 2008.

As we stated in a recent post on this blog, signs that the non-residential market is beginning to recover are beginning to surface. The AIA ABI Index was over 50 for three out of the last four months. Construction employment is up in many metro areas (as reported by AGC economics.) The CMBS (financing) market is beginning to come back to life.

Put this in perspective – Sales at American Reprographics Co (ARC).

ARC’s annual sales peaked in 2008, at approximately $700 million. ARC’s sales that year did not show the full negative-effect of the downturn already impacting the residential construction market, primarily because ARC’s sales in 2008 benefitted from recently completed acquisitions (what we call “acquired” growth rather than “organic” growth.) But, ARC pretty much turned-off its reprographics-company acquisition program. For the year 2010, ARC’s Sales will be somewhere around $445 million, if not a tad less or a tad more.

Okay, let’s see if we can use the Census Bureau’s values of put in place res and non-res construction to see if ARC’s Sales numbers are “proportionately tracking” those values:

For this math exercise:

(1) ARC’s Sales for 2008 were approximately $700 million.

(2) We’ll make an assumption that this was the “breakdown” of ARC’s 2008 Sales: 10% non-AEC, 90% AEC. We’ll make a further assumption that ARC’s 2008 AEC sector sales were 15% residential and 85% non-residential.

(3) The value of put-in-place “residential” construction for 2010 was 31% down from the value of put-in-place residential construction in 2008. (not shown in chart, but computable from chart.)

(4) The value of put-in-place “non-residential” construction for 2010 was 35.5% down from the value of put-in-place non-residential construction for 2008.

(5) Let’s make a further assumption that ARC’s non-AEC Sales have grown 15% since 2008, due to ARC’s non-AEC sales initiatives, including sales of software and sales of “RIOT Color” services.

After doing the math – and I do realize that this math exercise is somewhat fuzzy at best - this predicts 2010 (full-year) ARC Sales of approximately $491 million. That’s about $46 million more than the 2010 (full-year) Sales that ARC is expected to soon report. Does this shortfall mean that “per project” printing volumes are falling, due to AEC customers ordering less printing per project? Due to AEC customers ordering CD’s instead of prints-on-paper? Due to customers trending towards “paperless” construction?

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Finally, here are the charts I worked up from the “values” reported by the U.S. Census Bureau:

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Value of Private NONRESIDENTIAL Construction Put in Place –

Seasonally Adjusted Annual Rate (Millions of dollars.)

Year	Value		Formula		Results
2006	3,574,855
2007	4,429,325
peak 2008	4,894,085		3,163,167	=	35.37%	off peak
2009	4,160,281		4,894,085
2010	3,163,167

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Value of Private RESIDENTIAL Construction Put in Place

excluding rental, vacant, and seasonal residential improvements –

Seasonally Adjusted Annual Rate (Millions of dollars)

Year	Value		Formula		Results
peak 2006	7,399,983
2007	5,943,074
2008	4,216,910		2,913,600	=	60.63%	off peak
2009	2,955,439		7,399,983
2010	2,913,600

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You can find more details for “put-in-place” construction at this Internet address:

http://www.economicindicators.gov/