Submitted by the AGC
Construction spending (not adjusted for inflation) totaled $1.78 trillion in August at a seasonally adjusted annual rate, down 0.7% from the upwardly revised July rate but up 8.5% year-over-year (y/y), the Census Bureau reported today. However, without a deflator, it is impossible to say how much of the y/y gain is in units vs. price. Private residential construction spending declined 0.9% for the month, dragged down by a 2.9% plunge in single-family homebuilding. Multifamily construction spending rose 0.4%, while owner-occupied improvements increased 1.0%. Private nonresidential construction spending inched down 0.1% from July. The largest private nonresidential segment (based on seasonally adjusted spending in August 2022)—commercial—was flat for the month (including warehouse, down 0.8%, and retail, up 0.5%); followed by power, down 0.9% (with electric power up 0.4% and oil and gas field structures and pipelines down 5.1%); manufacturing, down 0.6% (including computer/electronic/electrical, up 3.7%, and chemical and pharmaceutical, down 1.2%); and office and data centers, up 0.3%. Public construction spending decreased 0.8% for the month. The largest public segment, highway and street construction, declined 1.4% for the month. Public education and transportation construction each slipped 0.4%.
Pricing and availability for some steel, lumber, and plastic construction products have stabilized or improved in recent weeks. Steel Dynamics notified customers today that it is “reducing the published price for parallel flange products, structural merchants, and bar products by $3.00/cwt ($60/ton),” effective today. “Rebar has remained flat through August and thus far through September,” New South News reported on Thursday. “With current rebar demand remaining steady, but not at the high pace of prior months, domestic mills have been able to adequately keep up with distribution and market consumption levels. Most high-volume buys are still being scheduled based on rebar production rollings, but spot needs and low volume requests between rollings have mostly been able to be fulfilled with shorter lead times….Inventory and availability also remain strong with regards to wire mesh reinforcing.…most requests for material [are] able to be fulfilled within two weeks….The lumber market continues to bump along the bottom. Slight pricing increases or decreases are occurring almost every week, but typically only last for the week. One specific grade and size may see a $20 increase one week and then see a decrease near the same amount the next. [Polyethylene sheeting] lead times for standard sizes and mill thicknesses are currently running two to three weeks. Occasionally this lead time can even shrink down to a week. Recent pricing is reflecting the current availability with manufacturers willing to move on pricing…” Readers are invited to send pricing and availability information to email@example.com.
Construction employment, not seasonally adjusted, rose from August 2021 to August 2022 in 246 (69%) of the 358 metro areas (including divisions of larger metros) for which the Bureau of Labor Statistics (BLS) posts construction employment data, fell in 57 (16%) and was unchanged in 55, according to an analysis AGC released on Wednesday. (BLS reports combined totals for mining, logging, and construction in most metro areas, to avoid disclosing data about industries with few employers. AGC treats the changes as being solely from construction.) Houston-The Woodlands-Sugar Land again added the most jobs (33,500 construction jobs, 16%), followed by the Seattle-Bellevue-Everett division (8,800 construction jobs, 8%) and the Los Angeles-Long Beach-Glendale division (8,300 construction jobs, 6%). The largest percentage gain, 20%, occurred in Muskegon, Mich. (750 combined jobs) and Bloomington, Ill. (600 combined jobs), followed by a 17% rise in Danville, Ill. (100 combined jobs). The largest loss again occurred in Orlando-Kissimmee-Sanford (-5,500 construction jobs, -7%), followed by Richmond, Va. (-3,500 combined jobs, -8%) and Austin-Round Rock, Texas (-2,800 combined jobs, -4%). The largest percentage decline, -8%, occurred in Richmond; Charleston, W. Va. (-500 combined jobs); and Ithaca, N.Y. (-100 combined jobs).
Demand for income-producing properties has been mixed recently but new construction is likely to be held down by rising financing costs. Apartment “vacancy rates remain low but have risen for three straight quarters alongside an elevated pace of new completions and moderating net absorption,” Wells Fargo Economics posted on September 26. The marked rise in rents and other inflation pressures are leading to renter consolidation and slower demand. [Office] vacancy rates ticked up to 12.3% in Q2 [the second quarter of 2022] as a wave of new deliveries offset a modest improvement in net absorption. A glut of sublease space continues to weigh on rent growth, although rents rose at the fastest annual pace since 2020 in Q2. Looking ahead, cooling job growth will prolong the office market recovery further. [New retail] construction has failed to keep pace with the post-pandemic upswing in demand. Vacancy rates ticked down to 4.4% in Q2, close to the previous cycle low hit in 2018. Rents rose 4.4% year-to-year, the highest since at least 2008 when records began. Demand for retail space is poised for a slowdown as high inflation hits the brakes on consumer spending over the next several years. [The warehouse vacancy rate in Q2 fell] to 3.9%, a new low. Consumer goods spending pulling back will certainly test the…market in the near term. The structural shifts of e-commerce integration and global supply chain reorientation, however, are likely to support demand in the longer run. [Hotel] occupancy rates are hovering near pre-pandemic levels. Leisure and corporate travel are likely to downshift under the weight of rising travel costs and slowing economic growth. The soaring [dollar] will lengthen the recovery in international travel.”