with Taylor St. Germain


Join ITR Economist and Speaker Taylor St. Germain in the latest episode of TrendsTalk as he dives into ITR Economics’ US Industrial Production forecast and highlights what our leading indicators are telling us as we head into 2024.



The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi, everyone. My name is Taylor St. Germain, an economist with ITR Economics and welcome to this edition of Trends Talk. I’ve done a lot of talking about the residential housing market over the last month, month and a half, and I felt that it was time to give the commercial non-residential side of the construction market a little bit of love. So I wanted to focus this Trends Talk on commercial construction today. Now, first it’s really important to understand the differences in terms of where commercial’s at in the overall economic business cycle versus where the general economy is and even where residential housing is.

So the way we think about commercial construction, it’s the caboose that trails behind the economy in residential construction. So residential construction typically leads the way through the economic business cycle and then you see the economy being industrial production or US GDP following along typically about 12 months later. And then 12 months after that you have the commercial construction markets going through the phases of the economic cycle. So if you’ve heard me discuss on our previous Trends Talks that residential construction has been through quite a challenging time in 2022 and 2023, that’s a pretty telling in terms of understanding where commercial constructions headed in the future.

Now, one way we understand these lead lag relationships between residential, between the economy, between commercial construction is of course looking at annual growth rates and correlating them with one another to understand this lead or lag time. And when you take the residential housing market and find the best point of correlation to the commercial construction market, we find that residential activity leads commercial activity by a full two years. And the reason that this is important is because just by understanding where the residential market’s been, we can with a high degree of accuracy understand where the commercial markets are headed a few years later.

And so residential construction, as I mentioned, has been very challenged and has gone through some significant decline as of late. But commercial construction activity has been doing very well. However, we see that commercial construction activity will be passing through the peak here shortly and transitioning to the backside of the economic cycle, again following that tail of residential construction. So commercial construction at the time that I’m speaking with you today is up 18.1% year over year and is still in phase B accelerating growth from an overall perspective. But we know that there’s some challenges ahead.

And so we do see commercial construction transitioning to the backside of the economic cycle and continuing to slow down as we progress in 2024. Now, some markets will contract for commercial construction in 24, some will just grow at a slower pace. And you can look at our ITR trends report to really understand that breakdown of the different commercial construction markets and where the growth is coming from. And I actually wanted to highlight a few of those today. For those of you that are trends, report subscribers, you’ll see that phase B accelerating growth and Phase C slowing growth is characterizing everything from office construction to education, to hospital, to warehouse, to even some of our public construction data series.

Now, one that really stands out to me because the growth rate is so significant is our US private manufacturing construction dataset. That dataset currently year over year is up 60.4%. Now, the next closest growth rate in the trends report in terms of commercial construction is multi-tenant retail construction, which is at 19.6%. So you might be saying, “Well, Taylor, what’s leading to all this growth in private manufacturing construction?” And that’s a lot of the reshoring and onshoring, not to mention all of the semiconductor and electric vehicle investment that we’ve seen domestically here in the United States.

So again, all of these commercial construction segments are generally growing, but there’s some that are performing much better than others. But as I previously mentioned, as we get into 24, we’re going to see some of these growth rates slowdown in our overall low point for non-residential commercial construction is in 2025 due to that lagging relationship that commercial construction has to the economy. So for those of you in the commercial construction space, enjoy 2023 and most of 2024, but understand as we get deeper into 2024, your mindset will probably change. Because you’ll be seeing the pace of growth slow down and we’ll even see some mild contraction in commercial construction in 24 and 25.

Now, for the most part, that contraction is mild, but it’s still important to understand how the strategy and the thinking will change as we get into 2024 and 25. There’ll still be opportunities, you’ll just have to work a lot harder to find them. So good news in the near term, a little bit more challenges in the long term and that just means that we’ll have to work a little bit harder, not just riding the wave of the market, but we’ll have to produce some of these opportunities for our businesses in 24 and 25 in the commercial segment rather than growing organically through some of our internal initiatives. So I hope you found this information helpful. My name is Taylor St. Germain with ITR Economics and thanks for joining me on this edition of Trends Talk.