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By Bassem Hamdy
October 10, 2016
For the first time in several weeks, our national Construction Health Indicator (CHI) has dropped 5 points since last week to 81. As has been the trend for the past few months, labor (90) remains strong despite the shortage, investments (85) reflect confidence in steady economic growth, and commodities (68) are weighing heavily on our national average.
For the first time in four months September saw a rebound in labor by gaining 23,000 net new jobs after losing 5,000 net jobs in August, according to an Associated Builders and Contractors (ABC) analysis of U.S. Bureau of Labor Statistics data. Due to demand, increases in base pay and longer working hours have been gradual. This has helped to support consumer spending.
In commodities, demand for steel has weakened. Despite the procyclical nature of the global steel market, China’s overproduction is driving down prices. Demand traditionally picks up in September but this year we've witnessed Chinese steel fall amid expectations that the U.S. Federal Reserve could consider a rate hike before the end of 2016, along with agreements reached at the G20 summit to suppress steel dumping.
This week, the biggest factor contributing to our low commodities score is lumber futures. In the wake of Hurricane Matthew, many reports of price gouging have already been reported. In addition, despite the rising chance of a Federal Reserve interest rate hike, lumber futures are trading at highs of just $343.10. This is the highest value during the past year – 16.3% higher than the yearly average.
As demand for softwood lumber in the US has expanded in 2016, consumption was 14.2% higher than during the same period in 2015. This increase in demand was predominantly met with higher production by sawmills in the US South, a substantial rise in import volumes from Canada that are up 40% and incrementally more shipments from Europe.
Typically, the winter season is not normally a peak time of demand for lumber as new construction projects tend to decline during the cold season in the United States. For example, last October, the price of nearby lumber futures traded to highs of $265, and right now, the price is 29.5% higher.
Similar to our nation’s current foreign affairs with the Chinese steel market, the U.S. Lumber Coalition has supported efforts to negotiate a new sustainable Softwood Lumber Agreement to offset unfair Canadian lumber trade practices. Canadian timber is heavily subsidized and sold at pennies on the dollar compared to the free market, creating competitive pricing and comparable quality to that of U.S. timber.
Without an effective agreement to counter this subsidy, Canadian trade practices could yield ever increasing market shares for Canadian product and producers, displacing workers and companies in the U.S. timber industry. Canada has traditionally accounted for about one-third of the U.S. lumber market and future negotiations will hopefully drive rates back to normal. Overall this commodity is giving us some valuable insight into the real estate market, especially for new construction, in 2017.
Although it fell 0.7% in August, nonresidential construction spending continues to be the leading force in a healthy investments score. According to an Associated Builders and Contractors (ABC) analysis of U.S. Census Bureau, data spending totaled $686.6 billion on a seasonally adjusted, annualized basis for the month – just 1.1% lower than July’s total of $694.1 billion. As a result of confidence in future investments, the construction equipment market is expected to reach $230.5 billion by 2022.
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.
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Procore Construction Health Indicator
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