As of Monday, February 13 our national Construction Health Indicator score is 81.6.
A decrease in housing sales, increase in output and workloads were all reported during the last three-month period. But forward-looking indicators suggest the outlook for building activity during 2017 has worsened, mainly because of the labor shortage and materials prices.
Lack of labor is squeezing productivity and margins
According to the Bureau of Labor Statistics, national construction employment reached its highest level in January since November 2008. A total of 36,000 new jobs were created, putting the industry’s employment total roughly at 6.8 million people.
The 0.5 percent increase represents the best month for construction employment growth since March of 2016.
The nonresidential construction sector added 14,900 net new jobs for the month, while its residential counterpart added 20,300 net new jobs (note that these don’t sum to the total due to rounding). The construction industry added 170,000 net new jobs on a yearly basis, an increase of 2.6 percent.
Unfortunately, the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) also show that nearly 200,000 construction industry jobs remain unfilled across the country. This is a jump of 81 percent in the last two years. Which means there is a lot of work to be done in attracting talent back into the industry.
17% fewer people are working in construction than at the market peak, with some states - including Arizona, California, Georgia and Missouri - seeing declines of 20% or more, according to data from the Associated General Contractors of America.
Despite marked growth since this period, the overall construction unemployment rate shot up to 9.4% in January, putting increased pressure on subcontractors and their teams. This shortage is raising builders' costs - and workers' wages - and slowing down construction.
Meanwhile, hourly earnings increased 3.2 percent over the year-long period running through January, rising to $28.52
an hour. Due to the labor shortage, hourly earnings for construction workers are rising faster than those for any other private-sector workers on average.
Construction spending is up and future sentiments are high
Construction spending in November totaled $1.182 trillion at a seasonally adjusted annual rate, the highest total since April 2006.
Without enough workers, residential construction is trailing demand for homes, dampening the overall economy.
And with labor costs rising, homebuilders are building more expensive homes to maintain their margins, which means they are abandoning the starter home market. That has left entry-level homes in tight supply, shutting out may would-be buyers at a time when mortgage rates are near historic lows.
Reflecting these trends, housing starts continued their see-saw pattern in December, rising 11.3 percent from November when they had fallen significantly after a sensational October. The increase this time, however, was due solely to a surge in multi-family construction. Meanwhile, housing permits turned in another lackluster performance.
The U.S. Census Bureau and the Department of Housing and Urban Development reported that residential housing starts were at a seasonally adjusted annual rate of 1,226,000 in December, up from a revised rate of 1,102,000 in November. The December estimate put housing starts up 5.7 percent from the level in December 2015.
Regionally, housing starts in the Northeast were up 18.5 percent from December, up by 31.2 percent in the Midwest, dipped 1.4 percent in the South, and up 23.5 percent in the West.
Now, momentum is tapering as mortgage rates have risen since the November presidential election, worsening affordability and potentially curbing sales growth as more buyers cope with affordability issues.
Geopolitical events are controlling commodities and materials prices.
Construction sector growth is mostly being hampered by the rising cost of construction materials. These rising costs are putting pressure on profits, and increasing the risk of slowing construction activity over the next 12 months.
An Associated Builders and Contractors analysis of BLS data in January found that material prices rose 0.4% in December after falling back in November.
Lumber futures have climbed 14 percent
this year. The price increase comes as the U.S. investigates softwood lumber imports amid allegations that Canadian timber is heavily subsidized.
Copper prices leaped more than 4 percent last week after a strike at the world's largest copper mine raised expectations of tighter supply. Copper futures contracts for March delivery hit a session high of $2.771 a pound, the highest since May 29, 2015.
Steel has seen a change in its fortunes this year. In the first half of 2016, high anti-dumping duties were major drivers of imported steel. However Shanghai Futures exchange still reflect that this commodity is 23.1% higher in January than it has been over the past year.
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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