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Construction Health Update: Healthy at 85, Confidence in Investments Continue to Rise


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As of Monday, November 21 our national Construction Health Indicator score is 85. 

This week the national Construction Health Indicator score jumped 3 points. This score was largely driven by rising confidence in proposed public infrastructure investments. Although it is too early to predict the direct effect this will have on our industry, we must prepare for the demand this will create.

Investments

For the first time in five months, our investments score is leading the charge in a strong overall Health Indicator score. The reason behind the unprecedented eight point jump – from 88 to 96 – is a proposed infrastructure plan of $1 trillion dollars. Along with the plan, confidence soared and is reflected in rising construction and engineering stocks. 

However, we are still experiencing the lowest value of total public construction spending in the past year. The most recent observation is 55.9% higher than the all-time low value. U.S. builders cut their spending on construction projects in September, the second straight monthly decline. Much of the decrease came as government spending for schools, sewers, and transportation projects tumbled. 

Taking a step back, the annualized value of construction initiatives was $880 billion in September. This was relatively high compared to the $863 billion average annualized value observed over the past 12 months––but still an astonishing 55.9% higher than the all-time low. 

According to the Commerce Department, total construction spending fell 0.7 percent in September to a seasonally adjusted annual rate of $1.15 trillion. Publicly funded construction dropped 0.9 percent to an annual rate of $270.3 billion. Over the past 12 months, government construction has slumped 7.8 percent - a decline equal to nearly $23 billion.

The notoriously volatile multifamily housing market has made a significant recovery since the great recession due to the need for affordable housing. Meanwhile, amid high demand for single family homes, figures for housing starts are at the highest levels observed in the past year – 88.5% lower than the all-time high value.

Labor

Low construction unemployment and unemployment duration continue to contribute positively to a solid labor score of 88. As of October 2016, the national unemployment rate was a mere 5.7% with 6.68 million people employed in the construction – the largest monthly total recorded in the past year. This is a 0.2% increase, and has continued to grow since August 2016. Higher wages have been one result of the ongoing construction labor shortage, as employers are upping pay to attract and retain skilled labor.

Meanwhile, construction backlog for large contractors remains at a peak of 14.06 months, according to the Associated Builders and Contractors Construction Backlog Indicator. Nationally, the average backlog fell to 8.5 months, down 1.6 percent from the last year. Overall, the Construction Backlog Indicator remained virtually unchanged on a year-over-year basis, signaling that growth in the nation’s non-residential market is slowing.

Commodities & Materials

According to an Associated Builders and Contractors analysis of Bureau of Labor Statistics, construction material prices remained unchanged between September and October. This is a 0.5% increase when compared to October 2015.

Procore’s Chief Economist, Anirban Basu, said the month-to-month and year-over-year rise in prices was due to stabilized energy prices and wage inflation. “Inflation and interest rate environment is steadily changing,” Basu said. “Promised infrastructure-led stimulus and tax cuts could create additional price pressures as workers’ compensation rises further and consumer spending helps bid up the price of goods and services more rapidly. At the same time, fewer restrictions on oil and natural gas production may limit fuel price increases.  

“The result is a complicated picture in which the price of certain inputs—such as iron, steel, copper, plumbing fixtures, and nonferrous wire and cable—begin to rise more rapidly during the coming months while fuel price increases remain stable,” Basu said. “Broader inflation in the United States has become more likely, an expectation that has been reflected in the form of higher interest rates since the election eight days ago. However, a still sputtering global economy will help put a lid on construction input price inflation, suggesting that contractors should not be deeply concerned by prospects for rapid input price increases, at least not yet.”

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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