Insights: Construction Industry

The construction industry in the United States consists of a large collection of diverse enterprises, from self-employed residential contractors to multinational construction and engineering firms. In 2021, real residential investment was $707 billion dollars and investment in non-residential structures was another $454 billion dollars. The $1.161 trillion-dollar total amounted to a little less than 6% of the Gross Domestic Product. The total value of new construction put in place in 2021 was a little less than $1.6 trillion dollars, an 8.2% increase over 2020 in spite of disruptions due to the pandemic. The construction industry employed more than 7 million people in 2021, a little less than 5% of the non-farm labor force.

History
After the collapse of the housing bubble in 2006 -2009, the level of construction spending reached a low point in January of 2011. Construction spending has grown steadily since then, except for a year of decline in 2018 and a brief decline in the wake of pandemic shutdowns in the first half of 2020.

Spending on private residential construction bottomed out after the recession in May of 2009. In the period from 2012 through 2017, once the recovery got underway, spending more than doubled. Spending declined in the latter half of 2018 but has grown vigorously for the last three years.

Recent Activity After a long period of slow growth or no growth, housing starts began to accelerate in 2019. By the end of 2018, starts had dwindled to an annual rate of a little over a million. By the end of 2019, starts had climbed to an annual rate of more than 1.5 million. Most of this growth occurred in the latter months of 2019. Activity dropped off sharply in March and April as the economy shut down, but activity returned just as vigorously in the last half of 2020. Over the last year, housing starts have settled at around 1.6 million annually, the highest rate since late 2006.

Spending on private residential construction began to grow explosively in the last quarter of 2019, and this growth accelerated through February of 2020 when the economy began to be impacted by the COVID-19 pandemic. Spending declined sharply through May of 2020, but then strong growth resumed and continued without slowing at least through the end of 2021.

Outlook
Construction spending declined 5% between February and May of 2020. Spending then grew rapidly over the next eight months. With the rapid growth in the early months of 2020, the overall growth for the year was close to 6%. The recovery continued into 2021 with an overall gain of about 8%. Even so, there appears to be considerable pent-up demand for housing, and we expect construction spending to grow robustly for the next two years.

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