Ken Simonson

Commercial Construction Spending Dips First Time in Nearly a Year

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

According to the Associated Builders and Contractors, national nonresidential construction spending shrunk for the first time in 11 months. The slight decrease comes on the heels of an 11-month record of commercial and industrial construction spending increases, propelled by robust manufacturing construction.

ABC Chief Economist Anirban Basu says although overall nonresidential construction spending is up more than 17 percent since August 2022, manufacturing-specific construction activity accounted for most of that increase.

“Excluding the manufacturing segment, nonresidential construction spending is barely outpacing inflation, up just 6 percent over the past year,” Basu said.

Spending in the manufacturing sector, according to Construction Dive, edged up 1 percent in May and remains up 76 percent year over year. Meanwhile data center construction – a subset of office construction – also inched up 1 percent in May and remains up 6.7 percent year over year.

Yet despite these increases in private-sector, nonresidential construction spending, most other categories are lagging behind, says Ken Simonson, Associated General Contractors of America chief economist.

“Our analysis of federal industry data indicates that public construction spending posted mixed results, as the largest infrastructure categories declined for the month and education spending flattened,” said Simonson. “Highway and street construction dipped 0.4 percent from April and public spending on transportation facilities – such as airports, transit and passenger rail – decreased 0.8 percent.”

Commercial construction spending including warehouse and retail builds also dipped 1.8 percent in May.

“The data for May show there has been no letup in the feverish pace of manufacturing construction but a very mixed picture for other project types,” Simonson said.

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Some Material Prices Down, Construction Costs, Diesel Still Climbing

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Although the price of copper and brass has decreased slightly, the cost of gypsum, concrete and diesel fuel are still headed upward, according to the Associated General Contractors of America.

AGC Chief Economist Ken Simonson says numbers reported on July 14 show that nonresidential construction costs – material and services – rose 1.1 percent for the month of June.

“Some materials prices have fallen recently, but others appear headed for further increases,” he said. “In addition, the supply chain remains fragile and persistent difficulties filling job openings mean construction costs are likely to remain elevated despite declines in some prices.”

The producer price index for inputs to nonresidential construction – the prices charged by goods producers and service providers, such as distributors and transportation firms – jumped 1.1 percent from May to June 2022 and increased a total of 16.8 percent since June 2021. Meanwhile, the index for new nonresidential building construction – a measure of what contractors calculate they would charge to erect five types of commercial/industrial buildings – climbed by 0.5 percent from May to June this year and a cumulative 19.8 percent over the past 12 months.

Add to that the soaring cost of diesel fuel, which jumped 14.1 percent in June and has more than doubled over the past 12 months, and you have a recipe for continued price pressure on the cost of future construction projects, according to the AGC.

“The more materials prices increase, the harder it will be for public officials to build new schools, roads and other infrastructure,” said AGC CEO Stephen Sandherr, whose organization is urging the Biden administration to remove remaining tariffs on a range of construction materials. The AGC is also asking public leaders at all levels to do what they can to help unclog backed-up supply chains. “Taking steps to address rising materials prices will help construction employers and taxpayers alike.”

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Warehouse Builds Nearly Offset Retail, But Construction Spending Still Down, AGC Says

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

For the first time in seven months, total construction spending decreased during September.

According to the Associated General Contractors of America, both nonresidential and residential construction slipped. AGC officials are urging the U.S. House of Representatives to complete work on the bipartisan infrastructure bill that the Senate passed months ago.

“Spending on projects has been slowed by shortages of workers and materials, as well as extended or uncertain delivery times,” said Ken Simonson, AGC of America chief economist. “And the extreme rise in materials costs is likely to mean some infrastructure projects will no longer be affordable without additional funding.”

Construction spending in September totaled $1.57 trillion (seasonally adjusted) nationwide, Simonson said, down 0.5 percent from August. Year-to-date spending in the first nine months of 2021 combined for an increase of 7.1 percent in total, compared to January through September 2020.

While both nonresidential and residential construction has experienced a decline in August and September of this year, the two categories have diverged as compared to 2020 levels. Nonresidential construction in both public and private sectors combined fell 0.6 percent in September and 5.8 percent year-to-date. Residential construction spending slipped 0.4 percent for September but was 24.5 percent higher year-to-date.

“Most infrastructure categories posted significant year-to-date declines,” said Simonton. “The largest public infrastructure segment – highway and street construction – was 1.3 percent lower than in January through September 2020. Spending on public transportation slumped 6.8 percent year-to-date.” The sole exception, he added, was investment in sewage and waste disposal structures; spending in this category rose 4.3 percent in the first nine months of 2021. That said, public water supply projects dipped 0.9 percent while conservation and development construction plummeted 19.5 percent.

Combined private and public spending on nonresidential electric power and oil and gas projects declined 2.5 percent over the same period in 2021. Education-related construction decreased 10.1 percent. Commercial construction – including warehouse, retail and farm structures – declined 1.7 percent. “A 13.2 percent plunge in retail construction from January through September of this year outweighed a 12 percent increase in construction of warehouse structures,” he said.

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Construction employment falls in May; hourly earnings premium, hires decline in April; openings soar

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Construction employment, seasonally adjusted, totaled 7,423,000 in May, a drop of 20,000 from April and the third decline in the past four months, according to AGC’s analysis [ https://AGCA.informz.net/AGCA/data/images/Employment table_May_PDF.pdf ] of Bureau of Labor Statistics (BLS) data posted [ https://www.bls.gov/news.release/empsit.nr0.htm ] on Friday The May total was 225,000 (-2.9%) below the pre-pandemic peak in February 2020. The gap widened between residential and nonresidential employment gains. Residential construction employment, comprising residential building and residential specialty trade contractors, edged up by 1,900 in May, putting the total 35,000 (1.2%) higher than in February 2020. Nonresidential construction employment—building, specialty trades, and heavy and civil engineering construction—shrank by 21,800 in May and was 260,000 (-5.6%) below the February 2020 level. A total of 642,000 former construction workers were unemployed in May, a sharp decline from May 2020 but the second-highest May level since 2014. The industry’s unemployment rate in May was 6.7%, compared to 12.7% in May 2020.
 
The BLS report also covers average hourly earnings by industry, with a one-month lag for subsectors. For total construction, hourly earnings in April averaged $32.59, 8.0% more than the average for the nonfarm private sector. However, over the past two years this premium shrank by 2.2 percentage points from 10.2% in April 2019, implying that the financial attractiveness of construction may be diminishing as other sectors that are expanding faster raise pay to attract more workers. The premium diminished the most for employees of heavy and civil engineering construction firms (-4.5 points, from 16.0% above the private-sector average in April 2019 to 11.5% in April 2021), followed by residential building firms (-2.7 points, from an 8.8% premium to 6.0%), specialty trade contractors (-1.0 points, from a 6.1% premium to 5.0%), and nonresidential building firms (-0.9 points, from a 25.4% premium to 24.5%).
 
There were 357,000 job openings in construction, seasonally adjusted, at the end of April, BLS reported [ https://www.bls.gov/jlt/ ] on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. Hires in April totaled 335,000 or 4.5% of the employment total for the month. Apart from the pandemic-depressed 3.1% rate in 2020, the rate was the lowest rate of hires for April in the 21-year history of the series, while the job openings rate (4.6% of filled and unfilled jobs) was the second-highest total for any month since the series began in December 2000. That is consistent with reports from many contractors that they are having a very hard time hiring workers. (JOLTS data combines nonresidential construction with residential, and it is not possible to tell if the demand and openings are coming from both segments of the industry.)
 
The Dodge Momentum Index jumped 9.1% in May from the revised April reading, Dodge Data & Analytics reported [ https://www.construction.com/news/Dodge-Momentum-Index-Increases-In-April-2021 ] on Monday. The index “is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year….May’s jump was the result of a large increase in commercial planning activity, which posted its strongest month-over-month increase since October 2017. Institutional planning, meanwhile, fell by less than one percentage point. Commercial planning had been in a holding pattern over the last four months, but broke out in May due to several sizable data center, office, and warehouse projects that peaked in a 13-year high for the commercial component of the Momentum Index. While essentially flat in May, institutional planning remains at levels not seen since 2009. On a year-over-year basis, both commercial and institutional planning were up from May 2020 (38% and 47% respectively). The Momentum Index overall was also 41% higher than in May 2020….The rising trend in planning activity is a good sign that the economic recovery is starting to spread into the construction sector. However, these projects are unlikely to have an impact on construction starts this year. Rising material prices and a continued shortage of skilled labor have led to project delays. On the upside, construction starts are shaping up for a healthy increase in 2022.”
 
Readers continue to report materials price increases, some immediate or retroactive, and supply-chain disruptions. A reader received a notice on June 5 from a structural steel supplier that “Effective with orders received after 8:00 pm EST, Friday June 4, [m]erchant products will be increased by…$70 ton.” A commercial furniture supplier notified customers on June 8, “Foam shortages persist, and foam pricing continues to rise[, making] it necessary to adjust pricing on select pieces[, ]effective June 7.” A Texas concrete supplier wrote to customers on June 4, “Effective August 1,…we will be increasing the price of all concrete products by $3.00 per cubic yard[, ] due to labor shortages.” Readers are invited to send information to ken.simonson@agc.org [ http://ken.simonson@agc.org ] .
Steel-industry newsletter Steel Market Update [ https://www.steelmarketupdate.com/ ] reported today, “Hot-rolled coil prices charged higher yet again even as lead times stretched into August, a typically slower time of the year….Hot-rolled coil prices have hit a new all-time high of $1,675 per ton, up $55 per ton compared to a week ago and up $1,235 per ton from August of last year. Cold-rolled coil prices were up $65 per ton week-over-week, galvanized base prices gained $20 per ton, and Galvalume prices were up $70 per ton. The increases came after June prime scrap prices settled up $60 per gross ton. Plate prices, meanwhile, were unchanged….SMU’s Price Momentum Indicators, in the meantime, continue to point toward higher prices for the next 30 days.”
 
Lumber-product prices have shown mixed trends recently. Futures contracts for lumber have declined sharply for four weeks in a row, while trade publication Random Lengths [ https://randomlengths.com ] reported further record weekly highs for oriented strand board and lumber prices.

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