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Construction Health Update: Construction Outlook Remains Generally Positive at 81.4


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As of Monday, February 20 our national Construction Health Indicator score is 81.4.

Times are good for construction, but there is much to wrestle with in order to protect margins. U.S. employment growth has resulted in an increase in demands for workforce housing, office buildings, retail space, and new industrial or distribution facilities. As a result, firms are reporting a healthy backlog of work, but they are also wary of rising materials costs and difficulty staffing the jobsite.

Housing Market in the South Continues to Highlight Construction’s Post-Recession Recovery

Spurred on by U.S. economic recovery, low mortgage rates, and steady national wage increases, the housing market is strong.

Housing starts fell 2.6 percent to a seasonally adjusted annual rate of 1.25 million units last month, according to the Commerce Department. In the West, starts fell 41.3 percent likely due to the impact of unusually wet weather.

The decline in new construction was centered around the volatile multi-family segment. Construction on apartment, condos and buildings with five or more units shrank nearly 8%. While starts for this housing segment tumbled 10.2 percent to a rate of 423,000 units

According to the Commerce Department, last month homebuilding surged 55.4 percent in the Northeast region of the country. It jumped 20.0 percent in the South to the highest level since August 2007. Meanwhile, work on new single-family homes rose almost 2% to an annual rate of 823,000. These homes are a better indicator of the economy’s health as single-family starts are near a 10-year high.

Permits to build new homes rose in another good sign, by 4.6% in January to a 1.29 million pace. This is up 8.2% in the past year, the highest level since November 2015. Building permits in the South, where most homebuilding occurs, hit their highest level since July 2007.

With overall permits now outpacing starts, homebuilding is likely to rebound in the coming months. 

According to Dodge, commercial building saw a growth of nearly 12% in 2016. This growth over the past few years has been increasing steadily and is expected to remain strong into 2017 at an estimated 6%.

Labor Conditions Continue to Restrict Profits Amid Increased Construction Volume

One limiting factor across the country is the disappearance of the skilled workforce. A January survey released by the AGC noted that nearly three-quarters of the 1,281 participating contractors said they hoped to increase their employment in the coming year — but an equal number expressed trouble filling both hourly and salaried positions. 

In addition, the overall construction unemployment rate shot up to 9.4 percent in January, putting increased pressure on subcontractors and their teams. This shortage is raising builders' costs - and workers' wages - and slowing down construction. With end-of-month construction openings at a 17-year high, this lack of workers continues to put a strain on the industry.

As a result, hourly earnings increased 3.2 percent over the year-long period running through January, rising to $28.52 an hour. This makes hourly earnings for construction workers the fastest income increase over those for any other private-sector workers on average for the past 12 months. 

According to a Bureau of Labor Statistics (BLS) the construction industry workforce grew by 379,000 as the construction industry and overall economy improved this year. Of those workers, 99,000  joined construction unions. Today, just 1.039 million out of 7.488 million U.S. construction industry workers belong to a union, according to bureau reports.

Commodities and Materials Continue to Be the Weakest Indicator Score

Construction material prices rose 0.4% overall in December, according to a new Associated General Contractors (AGC) analysis of the federal producer price index

The analysis also shows that the cost of materials rose noticeably faster than the price of completed buildings. From January 2016 to January 2017, there was a 3.8% rise in the producer price index for goods used in construction. Meanwhile, the price index for new nonresidential buildings — what contractors charge for their work — increased just 1.4%. This indicates that the average contractor, subcontractor, and owners have been struggling with reduced profits in the past year.

Most notably, steel, lumber, and copper have been particularly vulnerable due to global supply-side issues. The cost of copper is up 19.9% on a year-over-year basis because of mine strikes at the world’s largest copper mine in Chile. Regulations on the production of low-cost steel mill products in China have caused an increase of 11.4%. Meanwhile lumber and plywood rose 3.7% amid a trade dispute with Canada. 

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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