Over the last 18 years, the value added by the private construction industry as a percentage of real (inflation-adjusted) national gross domestic product (GDP) declined from a high of 6.17 percent in 1997 to a low of 3.66 percent in 2014 (the latest year for which annual data are available). Prior to 2014, the previous low percentage of GDP for the construction industry was 3.7 percent in 2011, inching up to 3.77 percent in 2012 and 2013 as both economic and construction activity increased.
Although not included in these figures, the U.S. economy also benefits from purchases related to construction projects, such as equipment for a new factory, furniture for an office or residential property, and appliances for commercial and residential units. These additional purchases add at least 2 percent to 3 percent to the impact of the construction industry on the economy.
In 2014, the top five states for construction as a percentage of state GDP in order from highest to lowest were:
1. North Dakota
3. Hawaii and Montana (tie)
Although lower energy prices have taken their toll on some of these states, the boom in energy helped put North Dakota at the top of the list in 2013 and 2014. The top ranking for 2013 is based on revised GDP data (North Dakota was tied with Louisiana for third based on preliminary data). Due to data revisions, Mississippi fell from its original top spot to fifth in 2013. In 2014, it slipped to number seven.
Louisiana, Montana and Utah also benefited from the energy boom. These three states, along with Hawaii, saw a boost from tourism-related construction as well. Further, housing construction played a role in the construction activity for these states.
The Bottom Five States
The bottom five states (excluding the District of Columbia) in 2014 for construction as a percentage of state GDP from highest to lowest were:
46. California and Michigan (tie)
48. New York
The bottom two states fell slightly below 3 percent. New York was at 3 percent, while the rest of the states were higher. Fewer than half of the states (22 states plus the District of Columbia) fell below the U.S. average of 3.7 percent. The state with the lowest construction percentage, Delaware, was less than 1 percent below the national average contribution to GDP for the industry, indicating that construction plays an important role in states' economies, even in states deriving a below-average boost from construction.
Outlook for the Economy and Construction
The economy advanced with fits and starts throughout 2014. Every time the data suggested the economy was finally picking up speed, it was followed by numbers indicating that the economy had stumbled. On a year-over-year basis, real GDP increased 2.4 percent in 2014 compared to 1.5 percent in 2013.
Even with stronger growth in the national economy, 2014 proved to be a more difficult year for construction than most forecasters expected. Despite some bright spots, the value added by the private construction industry fell in real terms in 2014.
Looking ahead, the U.S. economy is likely to perform somewhat better in 2015 than in 2014, which will benefit the U.S. construction industry.
Associated Builders and Contractors (ABC) is a national construction industry trade association representing nearly 21,000 chapter members. Founded on the merit shop philosophy, ABC and its 70 chapters help members develop people, win work and deliver that work safely, ethically, profitably and for the betterment of the communities in which ABC and its members work. Visit us at www.abc.org.