Despite mounting supply side headwinds, 2018 was a solid year for construction. Total construction spending experienced the slowest rate of growth since 2011, but still managed to rise 3.8%. Most of the slowdown occurred as a result of a 2.6% rise in residential spending, a meager result when compared to the previous five consecutive years of double-digit gains. Nonresidential construction outlays fared slightly better, bouncing back from a small decline in 2017 to rise 4.7% for the year.Private nonresidential spending rose 3.4%, while the vastly improved fiscal health of many local governments spurred a 7.0% increase in state & local spending, the most since 2007. The improvement in construction outlays occurred against a backdrop of stronger overall economic growth. Real GDP increased 2.9% in 2018, driven higher by strong consumer spending, fiscal stimulus and sturdy business fixed investment. We expect some moderation in 2019 as the simulative effects of the new tax law fade, but still expect real GDP to grow at a solid 2.4% pace.

Construction will continue to be supportive of overall GDP growth in 2019. Structures investment, which includes spending on new and existing nonresidential buildings as well as mining and oil and gas field structures such as rigs and pipelines, rose 5.0% in 2018. Given that overall investment in structures remains subdued by historical standards, construction activity should continue to steadily march higher. Structures investment was 3.1% of GDP in 2018, below the long-term average of 3.5%. Excluding investment in oil and gas field structures, expenditures are even lower using that same measure. While construction has steadily trended higher for much of this expansion, the pace of activity falls short of prior cycles. For example, at the peak of the 2001 cycle, nonresidential structures investment had expanded a cumulative 81% over the course of six years.The 1990s expansion saw a 75% rise in investment over 10 years. Nearly 10 years after the end of the last recession, structures investment has only risen 48%.