Construction's contribution to U.S. economy highest in seven years
According to a report released by Associated Builders and Contractors, the private construction industry’s value added as a percentage of the nation’s real gross domestic product rose to 4 percent in 2016, the highest level since 2009.
The report also shows annual growth in real construction spending, which rose 3.5 percent in 2016. Thirty-seven states benefited from the rise in construction activity, while 13 states experienced a reduction in activity.
Although the relative impact of the value added by private construction on various state economies varies both among states in a particular year and within a state over time, every state benefits from construction activity. The increase in that activity in a particular year adds to the income and potential growth of each state. A decline in that activity acts as a drag on a state’s economic performance.
The 3.5 percent national increase in real construction spending was a slowdown from the 4.9 percent increase in 2015. Only 18 states had a greater growth in real construction spending in 2016 compared to 2015.
The top five
The fastest growth was in the West and the South. The first state outside of those two regions in the ranking of construction growth rates is Rhode Island with the 16th largest increase (up 4.9 percent). In 2016, the top five states for the increase in their real value added from construction in order from highest to lowest were: Idaho, up 10.7 percent; Georgia and South Carolina (tie), up 9.4 percent; Florida, up 9.3 percent; and Oregon, up 9.1 percent.
Idaho had the highest percentage contribution from construction, even though state real GDP advanced a respectable, but more modest, 1.8 percent. Georgia slipped from its No. 1 ranking in 2015, while South Carolina made a significant jump from 17th to second place.
Florida’s ranking of No. 4 is down from second place in 2015 when its real construction spending was 11.1 percent. Oregon saw a big improvement from 33rd place in 2015.
The bottom five
All of the bottom five states suffered from the effects of low energy prices.
They were: Mississippi, down 2.5 percent; West Virginia, down 7.5 percent; North Dakota, down 10.5 percent; Wyoming, down 11.5 percent; and Alaska, down 13.2 percent
Alaska has struggled over the past few years. Not only did it experience the largest drop in real private construction spending in 2016, but it also experienced the second largest decrease in state GDP in the nation, down 5 percent. Real private construction spending has been down every year starting in 2011, except for 2015 (up 0.2 percent).
Although Wyoming improved its 2016 ranking — it had the largest decrease in 2015 at 6.6 percent — the 11.5 percent plunge was an acceleration of a bad outcome. North Dakota had the third-largest decline in its real private construction spending in 2016 and 2015, down 10.5 percent and 4.1 percent, respectively. However, the state’s growth in construction spending ranked in the top 10 from 2008 through 2014.
West Virginia had the fourth-largest decline in its real private construction spending in 2016 and 2015, down 7.5 percent and 3.1 percent, respectively. Mississippi’s 2016 decrease represents a slowdown in the decline in construction from 2014 and 2015, when private construction activity fell 8.6 percent and 5.6 percent, respectively.
Bernard M. Markstein, Ph.D., is president and chief economist of Markstein Advisors. He conducted the spending analysis for Associated Builders and Contractors.