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By Bassem Hamdy
November 7, 2016
As of Monday, November 7 our national Construction Health Indicator score is 81.1.
The strongest contributor is Labor, with a value of 88.4.
Construction Investments remain solid at 86.1.
The National Commodities & Materials Indicator is the weakest, at 68.8.
Building cannot be separated from the politics and economics that drive construction. As such, election cycles tend to impart a feeling of bipartisan drain on our industry. We are seeing this reflected in our national Construction Health Indicator score this week. After tomorrow’s election our country must usher forth a spirit of renewed confidence among consumers, private developers, and public policymakers if we are to continue gains made post-recession.
This is most evident in our poor investments and commodities scores. Although our economy grew at an annualized rate of 2.9% in the third quarter, many indicators suggest that this growth may not be sustained in the future.
Our national labor score is down two points this week. Last week the U.S. Bureau of Labor Statistics added just 11,000 net new jobs in October. Overall industry employment saw an increase of 0.2% on a monthly basis and 3% on a yearly basis, which is sub par from previous months.
Of this number, nonresidential construction contributed 3,000 net new jobs for the month. This is the sixth month out of seven that have experienced employment declines. However, this was offset by a gain of 4,100 jobs among nonresidential specialty trade contractors.
Meanwhile, the residential building sector gained 4,500 net new jobs in October. Heavy and civil engineering contributed an additional 3,400 net new positions. With the increase in available positions, the industry experienced a 16.7% drop in unemployment duration, which is a shift in trends from the previous two months.
Despite data from The Dodge Data & Analytics Momentum Index that suggests our industry took a hit in September falling 4.3%, our national investment score is up two points from last week. Hotel and office construction spending made gains for the nonresidential sector but had little impact on overall U.S. GDP which rose 2.9% this quarter.
Total private construction spending was relatively high compared to the $863 billion average annualized value observed over the past 12 months. This has mainly been due to a need for distribution centers being built nationwide. Contrary to previous predictions based on favorable interest rates, overall August construction spending dropped 0.7% to a seasonally adjusted annual rate of $1.14 trillion – the lowest spending figures since the beginning of the year. The Commerce Department also revealed that a 0.9% dip in residential spending was in line with reports of a 5.8% decline in housing starts despite growing demand.
Commodities & Materials
Our commodities and materials score is down two point this week. Volatility in commodity markets continues although the U.S. energy sector shows signs of growth after struggling for many quarters. A recent uptick in oil prices, from historic lows of below $30 a barrel earlier this year, continues to boost prices building materials with no signs of decreasing. This is most notably reflected in the figures for the producer price index of concrete (1.9% increase) and other sand, gravel and stone products – increasing a total of 4.4% since November 2015.
Conflicts with the Chinese government regarding overproduction and unfair dumping have caused steel rebar to rise 11.6% higher than the average over the past 12 months. Meanwhile, amidst U.S. consideration to decrease Canadian lumber imports, the price of framing lumber is up by 20% from one year ago and CME framing futures are up by about 40% year over year.
As we move towards the end of the year we must prepare for inflation, federal interest hikes, and a strong dollar. The effect that these challenges could have on our labor shortage and subpar nonresidential construction spending could impact the progress that we have made since the Great Recession.
Our future government plans to increase spending on public infrastructure. It is just a matter of which candidate wins and how much spending and subsidies will take place. Either way this move will be bullish for stocks and bearish for fixed income and could impact private investments. The true effects of political change will be seen in our commodities and materials score, as much of this is impacted by international trade and relations with foreign markets. Despite all of this, we remain confident in the solidity of our Construction Health Indicator score moving forward.
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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Procore Construction Health Indicator
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