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By Bassem Hamdy
January 9, 2017
As of Monday, January 9 our national Construction Health Indicator score is 83.6.
The strongest contributor is Investments 94.9.
The national Labor score is 91.
The National Commodities & Materials Indicator is 65.
This week the Construction Health Indicator saw a one point increase. Political sanctions on international trade and crude oil continue to impact the producer price index of several commodities including lumber, copper, and ready-mix concrete. Investments continue to show confidence under the promise of the president-elect’s proposed infrastructure plan. Meanwhile, labor shows little improvement in the percentage of open positions, highlighting the need for greater efficiency in the face of labor shortage.
According to the U.S. Census Bureau, construction spending in October rose by 0.4 percent. In this uptick, groundbreakings contributed an estimated total of $972.2 billion.
In the residential sector, housing starts fell 18.7 percent last month to a seasonally adjusted 1.09 million, according to the Commerce Department. Likewise, building permits fell 4.7 percent to an annual rate of 1.20 million. The plunge was mostly felt in the Northeast and West, while falling at less dramatic rates in the Midwest and South.
The National Association of Home Builders/Wells Fargo builder sentiment index remains high at 70 points. This indicates that as wages and salaries continue to grow, consumer confidence has risen to the highest levels in more than 15 years. Against this backdrop, Wells Fargo forecasts new home sales will continue to rise 8.0% in 2017 and 4.9% in 2018.
Meanwhile, although demand for apartments has been remarkably strong over the past five years, this market is at an inflection point. The apartment vacancy rate stood at 4.4% in the third quarter and Wells Fargo forecasts that apartment vacancy rates will rise above 5% in 2017. As a result, most forecasts anticipate that apartment construction will likely decline this year.
According to Associated Builders and Contractors (ABC) analysis of U.S. Census Bureau data, nonresidential spending expanded to $712.4 billion (5% increase) on a seasonally adjusted, annualized rate in November. This is the highest level of spending in eight years and reflects a good year-end for commercial and industrial construction.
Meanwhile in the public sector, total spending rose 2.8% compared with September. This is attributed to spending on educational facilities (up 4.1%) and public residential construction (up 11.9%) in November.
Procore’s Chief Economist, Anirban Basu, predicts that “the 2017 economy will be associated with tax cuts, more government spending, less financial regulation, faster economic growth, a stronger U.S. dollar, robust stock market performance and greater overall CEO confidence. This should translate into improved construction spending moving forward.”
According to analysis of the U.S. Bureau of Labor Statistics’ monthly report, the Associated Builders and Contractors (ABC) suggest that national construction employment declined by 3,000 net jobs on a seasonally adjusted basis in December.
The construction unemployment rate expanded by 1.7 percentage points in December and stands at 7.4% compared to the national unemployment rate of 4.7%.
Overall, the industry added 102,000 net new jobs on a year-over-year basis, the smallest increase in more than four years. Of the five construction sub-markets, only residential specialty trade contractors added jobs in December (11,700 net new jobs). Nonresidential construction lost 13,400 net jobs for the month, largely due to losses in heavy and civil engineering, which lost 8,900 jobs. These data are adjusted for seasonal variations, which means that one cannot simply blame the poor job performance on the transition from November to December.
The labor shortage continues as more than 80 percent of ABC members reported difficulty finding appropriately skilled labor. In order to staff for the rising demand of construction projects in 2017, many construction firms will need to do more with fewer people. This will show up in construction productivity data that reflect the amount of output generated by the average worker on a per-hour-worked basis.
Commodities & Materials
Construction material prices fell 0.5 percent between October and November, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data released Wednesday. However, prices year-over-year were up 0.5 percent.
In November, Saudi officials and OPEC, agreed to a major deal to limit oil production to 32.5 million barrels per day — down from its current levels of 33.7 million barrels of oil per day. As a result, energy prices are likely to rise in the near future and along with it materials prices will begin cutting into contractors' bottom lines.
This could translate into further stagnation in construction spending volumes and decreased bottom lines. These conditions will be particularly volatile if interest rates begin to rise more frequently in 2017, encouraging a growing number of proposed projects to become impracticable.
That’s all we have for now. Keep building and we’ll keep crunching the numbers. Check back here daily as numbers refresh and we’ll continue to translate this into meaningful digests that will help you make informed decisions all week long.
Click here for recaps from Construction Health Updates from past weeks.
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