Starts Sag in January, Construct Connect Finds; Openings Slide in December

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Submitted by the AGC

Construction data provider ConstructConnect reported today that the value of construction starts, not adjusted for inflation or seasonal variation, declined 6.6% year-over-year (y/y) from January 2019 to last month. The value of residential starts was flat, with single-family starts jumping 15% y/y and apartment starts plunging 32%. The value of nonresidential building starts tumbled 22% y/y, with commercial starts up 1.9%, institutional starts down 26%, and the volatile industrial category down 81%. The value of engineering (civil) starts rose 14% y/y. Chief economist Alex Carrick noted, “Since large project groundbreakings can often introduce notable volatility in the monthly ‘starts’ numbers and their period-to-period percentage changes, it is informative to also study ‘smoothed’ series. On a 12-month moving average basis, January 2020’s total nonresidential starts were +9.7% versus the previous 12 months (i.e., February-2019-to-January-2020 vs. February-2018-to-January-2019)[, with] commercial, +3.1%; industrial, +31.4%; institutional, -0.2%; and engineering, +18.3%. The ‘smoothed’ grand total of starts, which includes residential, was +5.2% in January. As for residential activity, it was -2.0% on a 12-month moving average basis,” with multifamily down 5.2% and single-family down 0.5%.

For the second month in a row, job openings in construction declined y/y, the Bureau of Labor Statistics reported on Tuesday. Openings in December 2019 totaled 239,000, not seasonally adjusted, down 60,000 (20%) from December 2018 but the second-highest December total in the 20-year history of the series. Contractors hired 278,000 employees in December, up 57,000 (26%) y/y and the most for December since 2005. Layoffs and discharges totaled 329,000, up 115,000 (54%) y/y and the highest December figure since 2016. Quits totaled 138,000, down 19,000 (-12%) y/y. (Not-seasonally-adjusted data is not comparable across months in a year, and widespread harsh or mild weather can distort December-December comparisons.)

“U.S. companies are paying more for insurance, a reversal after years of flat or declining rates for property and liability policies,” the Wall Street Journal reported on Wednesday. “Insurers have raised prices aggressively in the past year for companies of all sizes across the country. And they have warned that price hikes are likely to continue….Prices on nearly every type of insurance are rising, according to insurers and brokers. An exception is workers’ compensation, which is highly regulated by states. Excluding workers’ compensation, rates for property-casualty insurance sold to businesses rose 6.7% from a year earlier on average in the first three quarters of 2019, on track for the highest annual increase since 2003, according to brokerage Willis Towers Watson….On an earnings call last week, Chubb Ltd. Chief Executive Evan Greenberg listed rate increases ranging from 3% to 33% across its various products globally. Increases averaged 8% for U.S. commercial buyers. Some of Chubb’s biggest hikes were for property, excess-casualty and management-liability insurance for large U.S. corporations….The current price increases are partly due to hurricanes, wildfires and other catastrophes in 2017 and 2018 that cost the global industry more than $2000 billion…Insurers say they are also paying more for noncatastrophe claims. Property losses from building fires and mechanical breakdowns have mounted, said Joseph Peiser, global head of brokering at Willis Towers Watson. Some insurers have responded by reducing the maximum coverage in a policy, he said.” A presentation on January 28 at AGC’s Surety Bonding & Construction Risk Management 2020 Conference included this observation: “At present auto, property (especially vulnerable locations), [directors and officers] and professional are hard, [general liability] is in flux, and workers’ comp remains soft in most areas. Excess Liability is the most impacted in recent months of this cycle.”

The coronavirus does not appear to have had any measurable impact on U.S. construction so far but there are several ways it could potentially affect the industry, even if it does not become a widespread health threat in the U.S. Although construction is less dependent than other industries on China as the sole or major source of essential materials or components, a prolonged disruption to production in China or shipment of goods to the U.S. could cause delays in delivery of machinery, repair parts or projects. There is also some risk to specific construction projects. Transportation and distribution firms, hotels, resorts, retailers, colleges and other entities that rely on Chinese goods, visitors and spending might defer or cancel projects, either because of immediate cash-flow constraints or longer-term loss of business. As Wells Fargo Economics noted on Wednesday in an analysis of “Potential Regional Impacts of the Coronavirus,” states’ China-related share vary widely by type of activity. Readers are invited to email reports to ken.simonson@agc.org regarding any coronavirus impacts relevant to construction.

“The number of people working at small companies essentially didn’t budge last year, even as larger businesses continued to expand their payrolls for a record 10th-straight year,…according to an analysis of ADP payroll data by Moody’s Analytics,” the Journal reported on February 6. “Hiring at the smallest firms was especially weak in the manufacturing, natural-resources, transportation, construction and retail sectors,” said Moody’s chief economist, Mark Zandi. “[A]ccording to a survey conducted by the Journal and Vistage Worldwide Inc., an executive-coaching organization[, j]ust over 60% of 711 respondents said they expect the total number of people employed by their firm to increase during the next 12 months.” The 956 respondents to the AGC-Sage 2020 Hiring and Business Outlook Survey, which AGC released on December 18, were more optimistic: 75% reported they expect to increase headcount in 2020. Among respondents with $50 million or less in revenue, 71% expect an increase, vs. 81% each among respondents with revenue of $50.1-500 million and those with revenue exceeding $500 million.

 

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