Construction Health Update: Construction Under the New Administration
As of Monday, January 23 our national Construction Health Indicator score is 84.
The strongest contributor is Investments 97.
The national Labor score is 91.
The National Commodities & Materials Indicator is 64.
It’s official, Donald Trump is in the Oval Office. Trade deals, tariffs, regulations, stocks, and executive repeals – the industry is holding it’s breath to see when and how his presidency will impact investments and commodities. Meanwhile, the skilled labor shortage continues to be the industry’s biggest obstacle.
The Housing Market Remains on Solid Ground with Room to Grow
Housing starts jumped 11.3 percent last month, according to the Commerce Department. This was mostly driven by a 57.3 percent surge in the construction of multi-family housing units, which offset a 4.0 percent drop in single-family starts.
Housing permits – an indication of how much construction is in the pipeline – slipped 0.2 percent. As a result, The National Association of Home Builders/Wells Fargo builder sentiment index fell to 67 this month. That's a two point downgrade from a score of 69 in December.
This is an indication that U.S. homebuilders are feeling slightly less confident about their future sales prospects this quarter. This comes on the heels of a strong tail end to 2016, when builders' confidence reached the highest level in 11 years.
All of this is likely tied to the fact that, last week the average 30-year, fixed-rate mortgage slipped to 4.12 percent. While still low by historical standards, this rate is up after averaging 3.65 percent for all of 2016.
Overall, a slowdown in first quarter permits suggests that it may be difficult for construction to hit new highs this year without a strong rebound in single-family home building.
There is a silver lining in this news. According to Ralph McLaughlin, economist for real estate website Trulia, when controlling for the number of households in the U.S., housing construction remains 38 percent below its long-run average. By any account, this should be seen as an area of opportunity for potential growth in 2017.
“At it's peak, the housing industry can contribute upwards of 18 percent to overall GDP."
He says, “At it's peak, the housing industry can contribute upwards of 18 percent to overall GDP. And home construction jobs are the sort of middle-skilled, middle-class employment that the U.S. is desperately lacking. A steep increase in housing construction activity could be a huge boon for the economy in 2017.”
But, do we have enough laborers that are up to the task?
Unless We Do Something, Labor Will Squeeze Your Profits
Data from the U.S. Bureau of Labor Statistics indicate that construction job openings stand at a 10-year high. In addition to that, over 80 percent of Associated Builders and Contractors (ABC) members report difficulty finding appropriately skilled labor.
It’s no secret that the U.S. construction industry is currently facing a major shortage of skilled workers. Baby boomers are retiring, labor productivity growth rates are weak, and as building activity continues to rebound following the recession, major gaps in the AEC labor pipeline are being exposed. It’s the perfect storm.
Meanwhile, the construction unemployment rate expanded by 1.7 percentage points in December to 7.4 percent. With labor constraints like this, the average hourly earnings for construction workers rose to $28.28 per hour in 2016.
Baby boomers are retiring, labor productivity growth rates are weak, and as building activity continues to rebound following the recession, major gaps in the AEC labor pipeline are being exposed.
In the next 10 years, we can expect projects to demand more labor than will be available. As a result, labor supply constraints are not only likely to lower overall industry economic growth, but they will put further pressure on corporate profits.
Could The Art of the Deal Ease Commodities Prices?
Steel prices in China continue to rise with a push from the country’s announcement that it will further cut its steel capacity in 2017. Shanghai Steel Exchange prices climbed further this week, and are now up 16 percent year-to-date. This is good news for U.S. steel suppliers who compete with these Chinese steel prices.
The new U.S. President, Donald Trump, favors a more aggressive trade policy – regularly citing job losses as a result of imports from foreign countries, especially China. Commodities markets expect Trump’s tough trade policies could contain steel imports.
Meanwhile, with an increasing number of domestic infrastructure projects on the horizon, the global ready-mix concrete market is expected to reach 954.7 billion by 2024. In addition to this, rising government spending in emerging countries on power plants, manufacturing facilities, construction infrastructure along with the growing population will contribute to this market.
At the end of November, like many other stocks, copper hit an 18-month high on the back of optimism about the possible impact of president-elect Donald Trump's one trillion dollar infrastructure plan. The producer price index of copper has since simmered down, but is still up 5.7 percent this week to a one-month high.
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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