Posted April 4, 2023

AGC’s Data DIGest report

Big-city exodus slows; construction drags down GDP but study suggests impact may be overstated.

by Ken Simonson, Association General Contractors chief economist

“Big cities lost fewer residents last year as more immigrants moved in, fewer people died and more babies were born there, according to new census data [on population by county] that shows the urban exodus that gained steam early in the pandemic is cooling,” the Wall Street Journal reported on March 30, 2023.

“The suburbs of big cities and small and medium-size metropolitan areas continued to claim most of the country’s growth, according to a Wall Street Journal analysis of population estimates released for the year that ended June 30. Rural areas and small towns collectively remained nearly flat. The core counties of large metro areas had an estimated net loss of more than 800,000 movers to the rest of the country, but that was an improvement from a 1.2 million drop in the preceding year, the Journal analysis shows.

Ten of the country’s 25 largest metropolitan areas lost population during the one-year period. The gainers were all in the South or West, with the exception of the Minneapolis-St. Paul area, which recorded a small gain after losing residents the year before. Chris Porter, chief demographer at John Burns Real Estate Consulting said that in the wake of the pandemic suburban areas are likely to continue to be growth areas for employment and far outer-ring exurban areas are likely to see more housing growth.”

GDP increases
Real (inflation-adjusted) gross domestic product (GDP) increased 2.6 percent from the Q3 to Q4 of 2022, the Bureau of Economic Analysis reported. A decline in real construction activity meant the construction industry reduced GDP by 0.14 percentage points. By state, the construction industry contribution ranged from 0.48 percentage points out of a real GDP gain of 0.7 percent in North Dakota to -0.47 percent points out of a real GDP increase of 2.7 percent in Colorado.

In contrast, personal earnings of construction industry workers and owners contributed positively to earnings in every state and accounted for 0.37 percentage points of the 4.40-point increase in total earnings. The industry’s contribution ranged from 1.21 percentage points out of the 2.10-point gain in total earnings in North Dakota to 0.07 percentage points out of 3.10-point increase in total earnings in New Jersey.

The decline in real construction reported above conflicts with Census Bureau data on increasing construction spending and Bureau of Labor Statistics data on rising construction employment, as shown in this AGC PowerPoint.

Nonresidential construction spending is likely not as weak as it seems is the title of a paper posted by Federal Reserve researchers Eirik Brandsaas, Daniel Garcia, Joseph Nichols, and Kyra Sadovi on March 24, 2023.

“Indeed, models based on sector-specific indicators suggest real nonresidential investment could be about 20 percent higher in Q3 2022 than in the published statistics. The measurement issues likely have arisen due to the unprecedented increase in construction costs during the pandemic. Nominal spending is heavily imputed, and the imputation methodology does not allow for significant cost overruns. Also, the price indexes used to deflate nominal spending may have risen faster than some actual costs, given the ability of builders to lock in prices in advance.” Readers are invited to send comments to

Office construction falters
The outlook for office construction appears bleak. “Defaults and vacancies are on the rise at high-end office buildings, in the latest sign that remote work and rising interest rates are spreading pain to more corners of the commercial real-estate market,” the Wall Street Journal reported on Wednesday. “The amount of U.S. class-A office space in central business districts that is leased fell in Q4 2022 for the first time since 2021, according to Moody’s Analytics. The owners of a number of high-end properties recently defaulted on their mortgages, highlighting the financial strain from rising interest rates and vacancies. Higher mortgage costs eat into landlords’ earnings and make it harder to refinance expiring loans. Rising yields on bonds and other securities also make real estate look less profitable in comparison, making buyers more reluctant to pay high prices and pushing down property values.

While the values of hotels and rental-apartment buildings have fallen, these properties are also benefiting from inflation, which is pushing up room rates and apartment rents. Office buildings have seen a steeper drop in values partly because they are also grappling with weak demand from tenants who are cutting back on workspace. Green Street estimates that office values are down 25 percent over the past year.”

Data DIGest is a weekly summary of economic news. Sign up here. Editor:, Chief Economist, AGC. Go here for Ken’s PPT or more construction data.
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